I've just been looking into futures options. What am I misunderstanding here:
Expiry: June 8th, 2007
Strike: 0.0087 (call option)
Value per point: 1 point is 0.000001 , it is worth
$12.50 per point (the minimum fluctuation)
Exchange: CME or Globex (Globex is active during the
daytime in Japan)
Purpose: to hedge against JPY moving above 0.0087 (ie
114.95 yen per dollar).
Buy: June 8th, 2007 Call option at 0.00004 = 0.00004 x
12500000 = 500 yen per contract (the premium you pay
for the call).
Payoff: For each point above 0.0087 at expiry you will
get $12.50 USD. For example, if JPY goes to 0.009091
(110 yen per dollar) you will get 391 points or
391x12.50=$4887.50 (about 540000 yen).
Does this look right? If so it means I can buy an option for 500 yen and potentially make $4887. Can't be right. Help? Thanks folks.