A cylinder option that involves the purchase of a FX call option and the selling of a same-currency FX put option, with both options having the same premium value. In other words, this option requires no up-front cash payment to establish the position. An investor/trader buying a call option can protect himself against an appreciating currency. Also, this call gives the holder the right to take advantage of unlimited gains when the underlying currency is weak. Similarly, the investor/trader can sell a put option at a specific strike price, which would allow the buyer to sell a particular currency when it is in his favor, i.e., in case the future rate is better than the current spot rate.

For example, an importer wants to protect the USD cost of his euro payments due to be made in the next 6 months. Assume the forward rate is USD/EUR 1.10, while the spot rate is USD/EUR 1.15. The importer would like to lock in into the spot rate, and therefore, he buys a euro call option at 1.15, which allows him to buy euro from the seller at this rate and hedge currency risk. At the same time, he sells a euro put option at 1.05, which obliges him to buy euro at 1.05 if this rate is hit. This option combination means a possible improvement of 5 cents, but at the expense of giving up the possibility of benefiting from further depreciation in the euro below 1.05. The premium of the option sold is equal to the premium of the one bought.

This option is also known as a zero-cost cylinder option.