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Derivatives

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  • August 11, 2020
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Forward Call

An call option whose underlying is a forward contract. This option gives the holder the right to enter into a forward contract whereby he can buy a specific underlying asset at a certain future time for a certain price determined in the forward contract. In a forward option, the contract specifies a period of time, rather than a certain date, during which the holder will exercise his right to trade the underlying. The forward option is, in essence, an agreement to trade in the future for a fixed price set today.

If exercised, a forward call allows the holder to take a long position in a forward contract associated with a specific exercise price. The value of the exercised call is equal to that of the delivered forward contract.


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