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Hello Mr John.
When calculating Net return for interest rate options
Is the treatment for premium the same
When we buy call options or When we sell put options
Like do we less the premium in both casesIf we are depositing money we will be receiving interest. To hedge the risk we will buy call options and will pay a premium. Therefore the minimum net return is after subtracting the premium.
If we are borrowing money then we will be paying interest. To hedge the risk we will buy put options and will pay a premium. Therefore the maximum cost is after adding the premium.
This is all explained in my free lecture on interest rate options.
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