How do they affect the market?For example, EUR/USD is now at 1.4485. If a large 1.4450 EUR/USD option will expire in an hour(ex. 1.4490) , what impacts does the option put to the forex market?Does the option seller actually buy EUR at market price when the option is exercised and or the seller just pay option buyer the difference between 1.4490 and 1.4450?Can anybody tell me what will happen when an option expires?

How do you define a "large option", in terms of Instrument value (as defined by the FX platform/ Exchange)? The FOREX market is too large (supposedly 3 Trillions per day or more presently) and cross-currency prices move rapidly on a "perhaps" complex inter-dependent model of large Institutional participants and have negligible effect of "large" single option contracts.Options not exercised prior to expiry results in loss of Option purchase price. Option profits are reckoned by way of price differential at Strike/ expiry as mentioned by you.

No effect. There are basically 2 motivations to buy options. One is traders or speculators or whatever you want to call them. The second motivations is by businesses that need to hedge their positions, their revenues or expences or purchases. Even then they probably buy forwards then options which are pretty much priced in and expensive. For the former case, the traders, they dont exercise and take delivery do they ? They just buy and sell the options or expire worthless.As for the latter case its insurance, but the percentage is small compared to the actual leveraged $1 trillion worth of currencies being exchanged.So in my theory it has no effect tangibly. But intangilbly YES. for it tells you the sentiment of the calls and puts. Whether the calls are winning or puts are winnng, the ratio is more meaningful to me as a trader to guage the sentiment of the market.