Currency option contracts are traded on the Currency Options Market (UCOM). They were first traded in Philadelphia. They were created out of the desire to eliminate some of the disadvantages that currency future contracts and forward contracts have. There are two kinds of options: the American option and the European option. The American option can be exercised (sold) at any time before maturity, while the European option can only be exercised on the date of maturity. Obviously the American option is more flexible and the one that speculative investors are more interested in. Options also give the opportunity to go on both sides of a currency. For instance if you are short American dollars compared to Japanese Yen you would place a put option on American dollars and you would gain from the dollar depreciating. If you are long Japanese Yen compared to the Euro you would place a call option on the Yen and the appreciation would give you a gain. There are also strategies of hedging where you place and put and call option on the same currency if you think that the instability of the currency would make up the difference in buying both types of options. The typical life to maturity of an option is 2 to 6 months. Options also have the added benefit that they are sold on the UCOM market and also in over-the-counter-markets. The over-counter-markets are typically at investment banks around the world. Currency Options are typically in the main currencies (American Dollars, euros, Japanese Yen, Swiss Francs, etc). The biggest markets for currency options are again in New York and London.   SOURCES Information obtained from Sarin, Atulya and Shapiro, Alan C. Foundations of Multinational Financial Management, 6th Edition. 2009 John Wiley and Son, Inc.