»Ê¹ÚÌåÓýapp

»Ê¹ÚÌåÓýapp type of option described in TCGA92/S144 (8)(c)(iii) is a special type of contract in which two parties agree to sell options to each other. One party grants a put option and the other a call option. Ideally the premiums payable for each option will cancel each other out. Typically the options are for foreign currency and the aim is to hedge a rate within the limits set by the respective options. This is sometimes called a `min-maxâ€� contract.

EXAMPLE

• A manufacturing company knows it will have to buy US dollars. It does not want to pay more than 1.75 Euro to the dollar. »Ê¹ÚÌåÓýapp exchange rate stands at 1.5 Euro to one US$.
• »Ê¹ÚÌåÓýapp manufacturer buys a dollar call option allowing it to buy dollars at 1.75 Euro.
• »Ê¹ÚÌåÓýapp counterparty, say a bank, buys a dollar put option from the manufacturer allowing it to put dollars to the manufacturer at 1.25 Euro each.
• If, as intended, the premium payable for both options is the same no payment is made at the time the option is granted.