Equity Linked Foreign Exchange Option - ELF-X

Definition of 'Equity Linked Foreign Exchange Option - ELF-X'


A put or call option that protects an investor from foreign-exchange risk for a future sale or purchase of a specified foreign-equity portfolio.

Investopedia explains 'Equity Linked Foreign Exchange Option - ELF-X'


ELF-X options are a combination of a currency option and an equity forward contract. Should the exchange rate work in the investor's favor under the option contract, the total payout from the option is dependent upon the performance of the equities underlying the contract. Otherwise, the investor does not receive a payout.

For example, if an investor holds an ELF-X call option on USD relative to CAD, and the Canadian dollar depreciates relative to the American, the investor would not receive a payout. However, if USD depreciated relative to CAD, the investor would receive the amount saved from use of the spot exchange rate in the option contract and the foreign-equity portfolio value, less the premium paid for the call option. Also known as a "portfolio currency protection option" or PCPO.



comments powered by Disqus
Hot Definitions
  1. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
  2. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  3. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  4. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  5. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  6. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
Trading Center