Series 4

AAA

Index, Interest Rate And Currency Options - Premiums Priced Based Options Treasury Bills

Priced based options for Treasury bills are based on $1,000,000 par value of a 13-week Treasury bill that has yet to be issued. The option’s premium is quoted as an annualized percentage of the $1,000,000 par value. Because there are four 13-week quarters in a year, the premium would have to be divided by 4 to determine the amount owed or due.

Example:

A priced based Treasury bill option is quoted at 100. A quote of 100 = 1%

1% x $1,000,000 = $10,000

$10,000 / 4 = $2,500

TAKE NOTE!

Each basis point in the premium quote for a Treasury bill option equals $25.

Because the Treasury bill covered by the option has not yet been issued, an investor may not write a covered Treasury bill call. If a Treasury bill option is exercised, the Treasury bills will be delivered the following Thursday. Because Treasury bills are issued at a discount, the buyer does not owe accrued interest.

Series 4 practice tests

Rate Based Options
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