Dear sir,
While using futures options in this qn, it says the exercise price is 4% and June futures rate as 3.98%, when the interest rate increases by 0.5%
The answer to the qn should the option being exercise according to the revision kit says no,
I worked out the gain to be
(4%-3.98%)* 22mn*5/12 = 0.001833 mn
My doubt is is this gain too negligible to even consider exercising this option? Or am I making a big deal about this?
Thanks
Ask the Tutor ACCA AFM
Alecto (Pilot Paper)
These are put options.
Why on earth would anyone exercise the option and sell futures at 96.00 when it would mean buying futures at 96.02? There is no gain - there is a loss.
I really do suggest that you watch my free lectures on interest rate risk management.
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