Options Hedge

An options hedge is a hedge transacted in the options market for foreign currencies. An option contract is an agreement between two parties where the purchaser of the option has the right, but not the obligation, to enter into a transaction at some future date and at a price agreed to at the time the agreement is made. In terms of foreign currencies, an options hedge entitles the option purchaser the right to either purchase or sell units of an individual currency for a negotiated price on a certain date. Outside the foreign currencies market, the instrument is normally called an option, without the word hedge. See also futures hedge and forward hedge and money market hedge.