Non-Deliverable Options
In addition to NDF and similar to basic, “plain-vanilla” option contracts, exotic FX risk can be addressed utilizing a Non-Deliverable Option (NDO) contract.
The NDO extends to the buyer the right, but not the obligation, to buy via a “call option” or sell via a “put option” a set amount of foreign currency at a specified rate, or “strike price”, on a predetermined future date. Fundamentally, the NDO serves as an insurance policy against undesirable market trends. The significant difference between an NDF and an NDO is that the NDO gives the user the right, but not the obligation, to buy or sell a prearranged amount of foreign currency at a specified rate on a predetermined future date.
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