Using a Call Option to Hedge a Short Forex Position

Summary

The document considers how to limit the risk of a short GBP/JPY position after the exchange rate rises. The question proposes taking a long position through a binary option as a hedge, apparently in response to the adverse move. The answer redirects the discussion toward buying a call option, which gains value as the currency pair rises and can offset some losses on the short position.

This is a brief suggestion rather than a full hedging method. It does not compare binary and standard calls, specify contract size or expiry, or explain how to choose a strike or calculate the hedge ratio. A call option also has a premium and may not offset the short position’s losses one for one. The document therefore introduces the basic direction of an options hedge, but does not provide enough detail to implement or evaluate a specific hedge.

Key ideas

• A short position in a currency pair loses value when the pair rises.
• A long call on the pair can gain value as it rises and may offset some short-position losses.
• The response suggests a call option as an alternative hedge to a binary option.
• The document does not specify option terms, hedge size, premium, or expected hedge effectiveness.

Tags

# Binary Options hedge Forex position


# Binary Options hedge Forex position












if I am short GBPJPY and it start to jump up, instead of closing it, could I use Binary Options to long it immediately after jump up? So I could hedge current Forex position if possible.

## Answer by rupweb (score 1)

https://quant.stackexchange.com/a/28206

If you want to hedge a short why don't you buy a call option instead? Have a look at these option strategies for hedging

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.