Interest Rate Options

DEFINITION of 'Interest Rate Options'

An investment tool whose payoff depends on the future level of interest rates. Interest rate options are both exchange traded and over-the-counter instruments.

BREAKING DOWN 'Interest Rate Options'

Interest rate options from exchanges in the United States are offered on Treasury bond futures, Treasury note futures and eurodollar futures. An investor taking a long position in interest rate call options believes that interest rates will rise, while an investor taking a position in interest rate put options believes that interest rates will fall.

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RELATED FAQS
  1. Will speculators buy or sell Treasury bond futures contracts if they expect interest ...

  2. What is the difference between open interest and volume?

    Learn more about options, what options' volume and open interest are and the difference between volume and open interest ... Read Answer >>
  3. How do I measure option liquidity?

    An option is a financial instrument that gives the holder the right to purchase shares in a company at a certain set price ... Read Answer >>
  4. What are the advantages of using an effective interest rate figure?

    Understand what is meant by the effective interest rate, and learn why the effective rate calculation is preferred over the ... Read Answer >>
  5. How can I find out which stocks also trade as options?

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  6. What is the rationale behind the effective interest rate?

    Read about the reasons why market actors identify the effective interest rate as it pertains to investing, lending and accounting. Read Answer >>
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