Option
Short definition
An option is the right, not the obligation, to buy (call) or sell (put) at a strike. Premium is paid up front; it floors or caps the bad scenario and leaves the good one open.
Detailed explanation
FX and rate options are used as budget caps and collars. A zero-cost collar sells upside to avoid paying premium; it is not a free hedge.
Accounting and margin follow delta. A sold (short) option is speculation or a collar; an unauthorised short enlarges the open book.
Why it matters for the CFO
On tenders, uncertain volume and asymmetric shocks a forward is too rigid; an option sells flexibility for premium.
How to read it
Premium is an insurance cost; charging it to EBITDA is hedge cost, not a separate “loss” KPI. Delta changes economic openness.
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Definitions are educational. They are not investment, credit or tax advice.