Options

Options on interest rate futures provide the opportunity to limit losses while maintaining the possibility of profiting from a favorable move in rates. Options are analogous to an insurance policy - the option buyer pays a price or premium in return for the right to buy (call) or sell (put) a futures contract, within a stated period of time, at a predetermined price known as the strike (or exercise) price. If the price of the underlying futures contract never reached a level that makes it profitable for the options buyer to exercise his/her right, the option expires worthless.

All CME interest rate options are American-style, meaning that the options may be exercised on or before expiration. When taking an option position by purchasing a call or put, a performance bond (margin) is not required because the price paid on the option, also referred to as the option premium is the maximum loss that can be incurred by a long option position.

The CME lists options on Eurodollars, LIBOR, 13 week T-bills and Euroyen (Euroyen options are not eligible for mutual offset). Quarterly and serial (non-quarterly) options are available for Eurodollar, LIBOR, Euroyen, and 13 week T-bills . Mid-curve options, which are short dated, American-style options on long-dated Eurodollar futures, also are listed. These options have as their underlying instrument Eurodollar futures contracts one and two years out. Because the options are short-dated, they offer a low-premium, high-time-decay alternative in this segment of the yield curve.

The Option Report
The Option Trade Of The Day Report
Option Definitions