Nov 11 (Reuters) - Those worried about continued USD gains might consider simple USD call options to hedge the risk. They give holders the right to buy the USD at a specific level on a future date and only risk an up-front premium.

The perceived risk of U.S. President-elect Donald Trump's tax and trade policies increasing inflation and boosting the USD when he comes to office are already evident, and there's a risk of this move extending.

The price/premium of an FX option is determined by multiple variables such as interest rates and currency forwards, while distance of the strike level from the current spot rate, and future FX volatility are also considerations. However, the latter is an unknown quantity and therefore estimated with implied volatility.

Implied volatility was under pressure since the U.S. election risk was pared, but is now finding support to suggest some recognition of the potential value of options from current levels. The three month date could be popular as its expiry is now mid-February and gives Trump time to enact, or signal his true intent, for those policies.

Option risk reversal contracts show a broader implied volatility premium for USD call vs put options - the right to buy the USD versus sell it. This premium recognises the potential for more USD gains, which would help to support implied volatility and the overall option premium if realised

Those holding USD call options with an opposing cash position aren't exposed to the currency pair but can dynamically generate returns/bank actual volatility

by frequently adjusting that cash position. Hedged and unhedged FX options will both see their value increase amid any further implied volatility and/or USD gains.

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(Richard Pace is a Reuters market analyst. The views expressed are his own)

((Richard.Pace@thomsonreuters.com))