Series 4

By Jeff Van Blarcom AAA

Index, Interest Rate And Currency Options - Premiums Price Based Options Treasury Notes And Bonds

Treasury notes and bonds are priced as a percentage of par down to 32nds of 1 percent. Price based options are also quoted as a percentage of par down to 32nds of 1 percent.

Example:

A May Treasury bond 103 call on a 7% Treasury maturing in October 2015 is quoted at 1.16. The premium is calculated as follows:

1.16 = 1 16/32 % X $100,000

1.5% x $100,000 = $1,500

The investor will pay $1,500 for the right to purchase this 7% Treasury bond maturing in October 2015 at 103.

To determine the investor’s potential profit and loss on price based options, use the same rules that were applied to equity options. This investor will breakeven if this bond is trading at 104.16 at expiration. Priced based options settle with the delivery of the under- lying security two business days after the option has been exercised. The buyer must pay the exercise price plus accrued interest on the underlying security.

Series 4 Test Prep Material

Premiums Priced Based Options Treasury Bills

You May Also Like

Related Articles
  1. What to include – and leave out – to create the kind of resume that will get you the interview that lands you the job.
    Personal Finance

    Resume Strategies To Get That Finance ...

  2. Investing Basics

    Online Portfolio Management, DIY or ...

  3. Investing Basics

    A Day In The Life Of An Accountant

  4. Investing Basics

    CPA Exam tips

  5. Several things factor into the salary of a financial advisor. Here's a look.
    Investing Basics

    How Much Does A Financial Advisor Earn?

Trading Center