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John Moffat.
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niki27
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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 mnMy doubt is is this gain too negligible to even consider exercising this option? Or am I making a big deal about this?
Thanks
John Moffat
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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.
niki27
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