Structured Product

CALL SPREAD OPTION

Call Spread Option is a structured product which combines the purchase of a right (not an obligation) to buy certain currency (Buying Call Option) and the selling of a right to buy certain currency (Selling Call Option) with the same amount at different strike prices simultaneously in one transaction

Feature

• Call Spread Option is a hedging instrument
  
• It is European Option product whereby the option can only be executed on expiry date
  
• Transaction must be supported with underlying documents
  
• Transaction amount should be less than or equal to amount in underlying document
  
• The maturity date should be earlier than or the same with the maturity date of underlying document
• Customers must obtain transaction limit prior to transaction
  
   
   

Benefit

• Lower premium compared to Plain Vanilla Option or FX Forward
  
• Customers can participate with lower USD/IDR rate than Strike Price of Option 1
  
• Customers can avoid loss within Strike Prices range, but it is only applicable till market spot rate hit the Strike Price of Option 2
  
   
   
  
  

Risk
The movement of the exchange rate cannot be predicted accurately and any movement that differs from expectations may increase the cost of the Call Spread Option transaction.

Cost
Premium cost of Call Spread Option will be borne by Customer, calculated based on range of Strike Price and tenor of the transaction. 

Terms and Conditions:

1. Customer has signed the Participation Statement Letter of STRUCTURED PRODUCT – CALL SPREAD OPTION. 
   
2. The eligible Customer is Enterprise Banking and Financial Institution customer with Pre-Settlement Exposure (PSE) and Settlement Risk (SR) facility/limit with Bank and has already signed the ISDA Master Agreement with Bank.  
   
3. Customer has gone through Customer Due Diligence and Customer Suitability process. 
   
4. Customer deals Call Spread Option transaction with Treasury directly through recorded phone. 
   
5. Customer has to submit the Transaction Underlying to the Bank not more than 14 business days after the Transaction Date. 
   
6. The type of currencies that are currently allowed for Call Spread Option transactions are IDR, USD and other currencies which are available by Bank’s prevailing policies. 
   
7. This product is European option type; option is only exercisable on the option’s maturity date at certain period. 
   
8. The Strike Price of Option 1 is lower than the Strike Price of Option 2. 
   
9. Bank Danamon will send fair value (Mark to Market) Report to customer at the next beginning month for the outstanding transaction as of the prior month. 
   
    

Ilustration
Customer has a plan to drawdown foreign currency loan as much as USD 1,000,000 on 5 August 2021 for tenor of 1 year. As Customer has revenue in IDR, in order to protect the value of their foreign currency loan from volatility risk of currency, Customer will have to hedge using product Call Spread Option with Bank with range of rates USD/IDR = 14,250 and USD/IDR = 14,750 in consideration to expectation that exchange rate of USD/IDR will not appreciate to level above 14,750.

On 5 August 2022, Bank will have Fixing Rate based on market spot rate using Refinitiv page with ticker JISDOR. On expiry date of the option, 5 August 2022, simulation of what will happen to this Call Spread Option on 5 August 2022:  

1. If market spot rate USD/IDR on expiry date is at or below 14,250, Option 1 and Option 2 lapse, there is no settlement between customer and the bank. Hence, Customer can buy USD in spot market at lower rate than strike price of the option.  
   
2. If market spot rate on expiry date is above 14,250 but below 14,750, such that JISDOR on expiry date is USD/IDR = 14,500, Customer will execute Option 1 and receive USD 1,000,000 to repay their foreign currency loan at the rate of 14,250, 250 pips cheaper than spot market rate. In this condition, Option 2 lapses and not exercisable.  
   
3. If market spot rate on expiry date is above 14,750, such that JISDOR on expiry date is USD/IDR = 14,800, Customer will execute Option 1 and receive USD 1,000,000 to repay their foreign currency loan at the rate of 14,250. Then Customer will have to sell USD/IDR as much as USD 1,000,000 at the rate of 14,750 as Bank executes Option 2. At the end, Customer will buy their USD needs amounting to USD 1,000,000 at rate of 14,800 in the spot market. With this scheme, Customer will receive subsidy around IDR 500,000,000 from proceed of Call Spread with calculation below:  
   
    

1. Bank Danamon has the right to reject the products and services should the regulation and requirements are not fully met.
   
2. Customers have to read the Product Information Summary carefully and own the right to obtain all information from Bank related to this document.