Interpreting Long Calls on EURUSD Currency Options
Summary
The document clarifies what buying a call on EURUSD represents and how currency quotation conventions determine the payoff. EURUSD states how many units of the quote currency, USD, are needed for one unit of the base currency, EUR. A call on the pair is a call on EUR against USD: when the exchange rate rises above the strike, the holder may exercise to pay the agreed USD amount and receive EUR at the strike conversion rate.
The responses distinguish buying an option from describing equivalent exposures in the other currency. Under standard FX option conventions, the notional is in the base currency and the premium is quoted in the countercurrency; a EUR call is equivalent in payoff direction to a USD put, without reversing the investor’s long position. The discussion uses a simple strike and spot example to illustrate moneyness and settlement economics. It does not cover contract-specific settlement terms, premium conventions, or payoff diagrams for every quotation convention, so these should be checked for the instrument being traded.
Key ideas
- An FX pair quote gives the quote-currency amount for one unit of the base currency.
- A long EURUSD call gives the holder the right to buy EUR against USD at the strike.
- For an in-the-money call, exercise exchanges USD for EUR at the contractual rate.
- A EUR call and USD put describe equivalent option exposure, with the position direction preserved.
- FX option notionals and premiums commonly use different currencies under standard conventions.
Tags
Full text
# What does **Long Call EURUSD** mean? # What does **Long Call EURUSD** mean? What does Long Call EURUSD mean? Does it mean Long Call EUR and Short Put USD? When we draw payoff do we consider only w.r.t. to CCY1 i.e. EUR in this case? ## Answer by Dimitri Vulis (score 6) https://quant.stackexchange.com/a/49094 First please keep in mind that EUR (and GBP) are quoted "cable". So if the USD EUR exchange rate is quoted as 1.1, for example, that means that (quotation or countercurrency) USD 1.1 = (base currency) EUR 1. Most other currencies are quoted the other way, so if the USD CHF rate is 1.1, that means CHF 1.1 = USD 1. An investor is "long" an option means that the investor has bought the option, paid a premium, and now has the right, but not the obligation to exercise the option. If you're long a EURUSD option with the strike 1.1, and you can exercise when the spot rate is 1.2, then your option is in the money. You will pay USD notional (you're effectively long a USDEUR put..) and receive EUR notional (= USD notional / strike), which will be more EUR than you would have received using the spot rate in the market. ## Answer by AKdemy (score 4) https://quant.stackexchange.com/a/75588 You would actually sell the option to yourself if you were long a Call on EUR and short a Put on USD. FX is quoted as CCY1CCY2 (e.g. EURUSD) where it shows the amount of CCY2 needed to buy/sell 1 unit of CCY1. In terms of options, the standard Black Scholes model (called Garman Kohlhagen in FX) has Notional in CCY1, but price in CCY2. The call and put position refers to CCY1. A EUR Call is equal to a USD Put and you do not swap the direction from long to short (that would be at the other side of the market). Hence, if you want a Call on EUR you just need to buy a Call option. You can see in the screenshot below that a Long EUR Put is identical to a Long USD Call (or Long USD Put is equal to Long EUR Call). You can look here if you know some basic coding and are interested to compute the values yourself.
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