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.


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.

Need Help Passing Your Series 4 Exam?

Premiums Priced Based Options Treasury Bills

Related Articles
  1. Investing

    Introduction to Treasury Securities

    Purchasing Treasury securities backed by the U.S. government – and knowing their characteristics – can provide a steady guaranteed income and peace of mind.
  2. Investing

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  3. Investing

    The Importance Of U.S. Treasury Rates

    U.S. Treasury bond interest rates affect more than just bondholders! It impacts the day to day lives of all consumers.
  4. Investing

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  5. Retirement

    How to Pick the Right Bonds For Your IRA

    Learn about the best types of bonds to include in an IRA depending on an investor's risk tolerance. Understand the tax benefits of holding bonds in an IRA.
  6. Investing

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  7. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  8. Investing

    Government Bond ETFs to Date 2016 Performance Review (ZROZ, EDV)

    Find out how government bond exchange-traded funds (ETFs) are performing YTD in 2016, and which are the best and worst performers.
Frequently Asked Questions
  1. Can coupon in fixed-income security effect bond yield maturity?

    See how fixed-income security investors can expect to use coupon on semi-annual payments if the bond or debt instrument is ...
  2. How are savings bonds taxed?

    Learn who is responsible for reporting U.S. EE savings bond interest for taxation and when the interest can be reported for ...
  3. What is the difference between inflation and deflation?

    Determine how inflation and deflation affect prices, employment, loans, and the central banks. Economies frequently teeter ...
  4. How does the foreign-exchange market trade 24 hours a day?

    Trading in the forex is not done at one central location, but is conducted by phone and electronic communication networks ...
Trading Center