Interest Rate Options

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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.

INVESTOPEDIA EXPLAINS '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. What is the difference between in the money and out of the money?

    In options trading, the difference between "in the money" and "out of the money" is a matter of the strike price's position ... Read Full Answer >>
  2. If a long call is owned on the record date of a stock, is the owner of the option ...

    The owner of a long call for a stock is entitled to a dividend only if the option is exercised prior to the ex-dividend date, ... Read Full Answer >>
  3. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
  4. What does negative vega mean for credit spreads?

    Greek vega measures an option's sensitivity with respect to a change in the underlying asset's volatility. The vega of an ... Read Full Answer >>
  5. What options strategies are best suited for investing in the banking sector?

    The covered call option strategy allows investors to profit from the banking sector's stability and its track record for ... Read Full Answer >>
  6. What options strategies are best suited for investing in the drugs sector?

    The covered call and long straddle options strategies enable investors to capitalize on the unique characteristics of the ... Read Full Answer >>
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