Investing In Interest Rate Options

Interest rate options are options on the yield of U.S. Treasury securities. Interest rate options enable investors to speculate on the up and down movement of interest rates

Options are available on short, medium, and long-term rates.

Interest rate options are “yield-based options”. As in other options transaction “call and put” buyers are investing on interest rates moving in opposite directions.

An interest rate call buyer anticipates interest rates will go up. This will increase the value of the call position.

A put buyer has the opposite expectation: that rates will go down, increasing the value of their put position.

Yield-based call option buyers profit when interest rate rises above the strike price plus the premium paid for the call.

Put options buyers make money if, by expiration, interest rates have fallen below the strike price less the premium paid for the put.

For further information or to initiate investing in interest rate options please consult the Chicago Board Options Exchange or CBOE.