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Derivatives

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  • January 4, 2022
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Forward Reversing Option

An exotic option in which the premium is paid in the future on the condition that the price of the underlying is trading away from a specified level. In other words, a call option will have its premium paid only when the spot rate is below a preset level, while the premium of a put option will be payable when the spot rate exceeds a preset level. In foreign exchange markets, a forward reversing option is the same as a straight FOREX option except that the option premium is paid in the future contingent on the FOREX price being above or below a specified level.

The premium typically is quoted by the option’s writer who charges it only when the option is not exercised.

This option is also known as a conditional forward.


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