Interest Rate Options
Interest rate Options are European-style, cash-settled options on the yield of U.S. Treasury securities. Available to meet your needs are options on short, medium, and long-term rates. These options give you an opportunity to invest based upon your views of the direction of interest rates.
In general, when yield-based options are purchased, a call buyer and a put buyer have opposite expectations about interest rate movements. A call buyer anticipates interest rates will go up, increasing the value of the call position. A put buyer anticipates that rates will go down, increasing the value of the put position. A yield-based call option buyer will profit if, by expiration, the underlying interest rate rises above the strike price plus the premium paid for the call. Alternatively, a yield-based put options buyer will profit if, by expiration, if the interest rate has declined below the strike price less the premium paid. Of course taxes and commissions must be taken into account in all transactions.
Interest Rate Options Product Specifications
Symbols:
13-Week Treasury Bill - IRX
5-Year Treasury Note - FVX
10-Year Treasury Note - TNX
30-Year Treasury Bond - TYX
Underlying:
IRX is based on the discount rate of the most recently auctioned 13-week U.S. Treasury Bill. The new T-bill is substituted weekly on the trading day following its auction, usually a Monday. FVX, TNX and TYX are based on 10 times the yield-to-maturity on the most recently auctioned 5-year Treasury note, 10-year Treasury note and 30-year Treasury bond, respectively. LEAPS are long-dated options that expire in approximately two to three years from the date of initial listing. Options are European style exercise and are available in up to three near-term months followed by three additional months from the March quarterly cycle. LEAPS expire in December of the expiration year.
Multiplier:
$100
Strike Price Intervals:
2 1/2 points. A 1-point interval represents 10 basis points. (The standard strike price table applies to 5-point intervals; codes U-Z are used for fractional strike prices).
Premium Quotation:
Stated in decimals. One point equals $100. The minimum tick for options trading below 3.00 is 0.05 ($5.00) and for all other series, 0.10 ($10.00).
Expiration Date:
Saturday immediately following the third Friday of the expiration month.
Expiration Months:
IRX - Three near-term months plus two additional months from the March quarterly cycle (March, June, September and December). FVX, TNX, TYX - Three near-term months plus three additional months from the March quarterly cycle. LEAPS expire in December of the expiration year.
Exercise Style:
European - Interest rate options may generally be exercised only on the last business day before the expiration date.
Settlement of Option Exercise:
The exercise-settlement values of interest rate options (symbols above) are based on the "spot yield" on the last trading day as reported by the Federal Reserve Bank of New York at 2:30 p.m. Central Time. (Spot yield refers to the annualized discount rate on the most recently issued T-bill or yield-to-maturity on the most recently issued T-notes or T-bond.) Exercise will result in delivery of cash on the business day following the expiration date. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $100.
Position and Exercise Limits:
IRX options and LEAPS - The aggregate position and exercise limits are 5,000 contracts on the same side of the market. FVX, TNX, TYX options and LEAPS - The aggregate position and exercise limits are 25,000 contracts on the same side of the market. A hedge exemption for public customers may be available for certain diversified portfolios that may expand the limit.
Margin:
Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 100% of the option proceeds* plus 15% of the aggregate contract value (current index level x $100) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 10% of the aggregate contract value and a minimum for puts of option proceeds* plus 10% of the aggregate exercise price amount. (*For calculating maintenance margin, use option current market value instead of option proceeds.) Additional margin may be required pursuant to Exchange Rule 12.10.
CUSIP Numbers:
IRX - 124918, FVX - 124951, TNX - 124952, TYX - 124953
Last Trading Day:
Trading in interest rate options will ordinarily cease on the business day (usually a Friday) preceding the expiration date.
Trading Hours:
7:20 a.m. - 2:00 p.m. Central Time (Chicago time).