So how exactly do you determine the value of a forex option? The intrinsic value is the most current value of the option if it were exercised immediately. The strike price might be higher, lower, or equal to the current market price.
The longer you own the option, the higher premium you’ll be paying because the time value is greater. This is the time value of the option.
The correlation between the strike price and the current market rate of the option is the interest rate differential. You usually see this reflected in the form of a premium as a function of the time value.
Fortunately, the probability of the current market price hitting the strike price increases as the market becomes more volatile. The time value of the option also has the time value function factored into its calculation. This usually leads to high volatile currencies to have high options premiums.
External Resources:
Forex Trading System
Forex Option Trading Resource
