I am a bit lost with understanding the naming used for holding positions in the currency options and their payoffs.

If I want to buy the European option with an amount of x USD (EUR put/ USD call), what is the position I should hold? Is it a long call or a long put?

I would say a long call but then I am confused about the payoff. The rule for exercise at expiration with European options is that the long call is in-the-money:

  • Strike price < Spot price at maturity

How this translates into this situation:


My strike price = 1.25 EUR/USD

Spot price at maturity = 1.3 EUR/USD

I want to buy 1000 USD.

In this situation, the rule for long call exercise does not make sense (Strike price < Spot price at maturity) because if I buy 1000 USD then at the strike price it is equal to (1000/1.25) = 800 EUR and at the spot rate it is equal to (1000/1.3) 770. This means that it is better NOT to exercise the option when the strike price < spot price and it is better to buy at the spot.

Am I missing something? Why the rule says that the strike price should be less than the spot rate at maturity to exercise long call??


FOREX Options only trade on one pair. For EUR/USD u can only make options EUR/USD. You can exercise a long call at any given price at maturity. It only makes sense, however, to exercise when you would make money.

  • My question has nothing to do with your answer.
    – Dozens
    May 31 '19 at 9:09
  • Your question is why do you need the strike to be below the spot rate May 31 '19 at 12:44

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.