Non-Equity Options: Foreign Currency and Yield-Based

What this video covers

• The standard contract size for foreign currency options (10,000 units), and why the Japanese yen contract breaks that rule at 1,000,000 yen
• Why buying a call on a foreign currency means you are bullish on that currency and bearish on the U.S. dollar, and how the seesaw logic reverses for puts
• The settlement surprise: foreign currency options generally settle by physical delivery of actual currency, not cash, with limited exceptions for specific cash-settled series
• Why both foreign currency and yield-based options are European-style, exercisable only at expiration, and how exam writers exploit the contrast with American-style equity options
• How to convert a yield-based strike price quote to the actual yield (move decimal one place left: strike 35 equals 3.5% yield)
• The inverse relationship that makes a long yield-based call profitable when interest rates rise and bond prices fall, and why this position hedges a bond portfolio against rising rates
• The cash-only settlement of yield-based options, and the shared European-style exercise characteristic that binds these two non-equity categories together