A fixed income portfolio manager (PM) has a euro-denominated bond maturing and wants to repatriate the proceeds of this asset for use in the United States.

• The PM can purchase a bespoke-dated euro put option from a bank.
• If the put is in-the-money (ITM) at expiry, the PM will exercise the option and use the spot transaction to sell EUR for USD for value on the bespoke date of the option.
  If the put is out-of-the-money (OTM) at expiry, the PM will need to enter a second transaction to sell EUR versus USD on a spot basis.
• The bespoke option is less transparent and more expensive; potential pricing slippage incurred if PM decides to offset the option instead with a bank prior to expiry. There is also possible execution risk if the option expires OTM, thus requiring a separate, second spot transaction to convert EUR to USD on the bespoke date.

Alternatively, the PM could buy an exchange-listed EUR/USD put option at CME Group – anonymously, with fully transparent and competitive pricing: 

• If the put is ITM at expiry, the listed option is auto-exercised. The PM can then buy the EUR/USD basis on FX Link to offset the short futures position originating from the option’s exercise, while achieving the desired spot settlement of selling EUR for USD.
  If the put expires OTM, the PM simply executes a spot transaction instead, selling EUR for USD. 
• The result: The PM receives full central clearing party benefits, portfolio netting of futures and options, and optimized margin and lower funding requirements.