American option - an option that may be exercised at any time

At-the-money spot - an option with an exercise price equal to the currency spot rate

At-the-money forward - an option with an exercise price equal to the currency forward rate

Assignment - notification to the option writer requiring him to fulfil his contractual obligations to buy or sell the currency.

Bear spread - an option strategy designed to allow the trader to participate, with limited profit and limited risk, in the decline of a currency

Bull spread - an option strategy designed to allow the trader to participate, with limited risk and limited return, in the rise of a currency

Break-even point - the foreign exchange rate or currency futures price at which a strategy neither makes nor loses money

Butterfly spread - a combination of a bull spread and a bear spread; the strategy normally gives a maximum return and maximum loss

Call option - an option that gives the holder the right to buy, and the writer the obligation to sell, a predetermined amount of a currency to a predetermined date at a predetermined exchange rate

Calendar spread - a strategy involving the buying and selling of options with different expiration dates

Combination - a strategy involving the buying of call and put options with different strikes but with the same expiration dates

Conversion arbitrage - a riskless strategy involving the buying of a currency and the simultaneous buying of a put and writing of a call option, both normally European-style and of the same strikes and expiration

Clearinghouse - an organization which matches and guarantees option trades on an exchange

Credit premium - the premium received when an option is written

Covered write - a strategy involving the buying of a currency and the writing of a call option, or the selling of a currency and the writing of a put option

Debit premium - the premium paid when an option is purchased

Delta - the ratio by which the price of the option moves relative to the underlying spot or futures contract

Downside protection - for covered calls the 'cushion' against loss provided by the option premium received

Early exercise - the exercise of an option before its expiration date

European option - an option which may only be exercised on the expiration day

Exercise – the process by which the holder of an option elects to take delivery of (call) or deliver (put) a currency according to the contract terms

Exercise price - the price at which the option holder has the right to buy or sell the underlying currency or currency futures contract

Expiration date - the last day on which a holder of an option can exercise

Expiration time - in the over-the-counter market, the latest time an option may be exercised is usually 3pm London time or 10am New York time, or 3pm Tokyo time, on that particular day

Gamma - the change in the delta for a unit change in the spot price.

Hedge ratio - the ratio of options to buy or sell against a spot position in order to create a riskless hedge.

Implied volatility - the expected standard deviation of percentage price changes

Intrinsic value - the value of an option, were it to be exercised immediately

In-the-money - an option that has intrinsic value. For a call, the strike is below the spot rate. For a put, the strike is above the spot rate.

Leg - one component of a multiple option strategy

Mark to market - daily adjustment of an account to reflect accrued profits and losses.

Naked position - a short option position which is not covered by the underlying currency or with another option.

Out-of-the-money - an option with no intrinsic value. For a call, the strike is above the spot rate and for a put the strike is below the spot rate

Over-the-counter market - customized option market usually traded directly between banks and their customers or with other banks.

Premium - the amount of money paid by a buyer and received by a seller for an option

Put option - an option giving the holder the right to sell and the writer the obligation to buy, a predetermined amount of currency to a predetermined date at a predetermined exchange rate

Settlement date - two business days following exercise. It is the day on which the currencies involved in the option transaction are exchanged

Spread - strategy involving the simultaneous buying and selling of options on the same currency

Straddle - strategy involving the buying of call and put options with the same strikes and maturity

Strangle - strategy involving the buying of call and put options with different strikes but with the same expiration dates

Strike - the price at which the option holder has the right to buy or sell the underlying currency or currency futures contract

Theta - the change in the premium for a unit change in time

Time value - the amount by which an option premium exceeds its intrinsic or in-the-money value

Volatility - the standard deviation of percentage price changes

Vega - the change in the premium for a unit change in implied volatility

Writer - one who sells an option