A currency option is a contract that grants the buyer the right, to buy or sell a specified amount of currency at a specified exchange rate on a specified date, while at the same time obliges the option seller to carry out the transaction as specified on the contract in case option buyer opts for using his/her right.
An investor who would like to carry out speculative transactions and has predictions for the future level of a currency will prefer to sell an Option to earn premium.
An investor who has a future payment or would like to hedge his/her existing funds from fluctuations in the currency market will prefer to buy an option in exchange for a premium payment.
Whether or not the transaction specified on the contract will be effected depends fully on the option buyer. If carrying out the transaction is in favour of the option buyer than the transaction is exercised.
Premium amount is paid to the option seller the day after the contract is signed.