Currency option, also named foreign exchange option, is a contract but not an obligation that grants the owner to buy or sell one currency at a pre-agreed exchange rate during a specified period of time. Some commercial banks offer currency option to their customers in order to make up losses from favorable movement. Exchange-traded currency options were first offered in 1983 by the Philadelphia Stock Exchange, but now they are traded on the United Currency Option Market. Currency option accounts more than 9 % of the daily trading volume, which is one of the fastest growing segments of the global foreign exchange market. An option gives the holder the right to sell or buy another financial instrument at a set price and expiration date. The seller must fulfill the contract if the buyer so desire it. The buyer must pay the seller of the option some premium for the privilege. Call option means to purchase, while put option means to sell. Because a foreign exchange transaction has two sides, a call option on a foreign currency can be considered a foreign currency put option on the domestic currency. An American option can be exercised at any time up to the expiration date, while a European option can be exercised only at maturity.There are three kinds of option, which are in-the-money, out-the-money and at-the money. In-the-money means strike price<spot=profit. Out-the-money means strike price>spot rate=loss. At-the-money mean strike price=spot rate. Typical users of currency options might be financial firms that hold large investments overseas. Those firms have sizeable unrealized gains from exchange rate changes. Limited use of currency options has also been made by firms that have a foreign currency inflow or outflow that is possibly forthcoming but not definitely. Currency call options can provide a better hedge in some cases, and also can be used by pure speculators that without an underlying foreign currency transaction to protect against.   http://en.wikipedia.org/wiki/Foreign_exchange_option