BOT Treasury bond futuresoption expires on the first Friday preceding by at least five business days the end of the monthjust prior to the futures contract expiration month. An exception is the CME mid-curveEurodollar contract where the futures contract expires either one or two years after the optionscontract.
Table 13.5 sliows quotes for futures options as they appeared in the Wail Sireei Journal onMarch 16, 2001. The most popular contracts include those on corn, soybeans, wheat, sugar, crudeoil, heating oil, natural gas, gold, Treasury bonds, Treasury notes, five-year Treasury notes,Eurodollars, one-year mid-curve Eurodollars, Euribor, Eurobunds, and the S&P 500.
Options on Interest Rate Futures
The most actively traded futures options in the United States are those on Treasury bond futures,Treasury note futures, and Eurodollar futures. A Treasury bond futures option is an option to 
280 CHAPTER 13Table 13.5 Closing prices of futures options on March 15, 2001Thursday, March 15, 2001 Orange julwe (NyBor) ib. Sasonne uniegd (NYM)5 Ibs. sents er al.; v
AGRICULTURAL | sirae oer urs: SIRE CALSSEFTLE _purs-semneCorn (CBT) PRE May Wy Sep May Jy Sep | PREE = Apr Jun ir Jun5,000 bu.; cents per bu. wetter | BD oe OAT4 0504 offs a 0495STRIKE i PUTS-SETTLE | 65 sea 010. 880082 ues 0462 0203 0410 0553PRICE i May dy} 7005.05 BU 035 0.86 | 87 0231 0422 (0262 (0466 0612190 wm TTS 185 615 820 175 (1.85 1.65) 88 = 0189 a0 0386 0310 0525 0675m i. Me We 4 80035 265 580 565 415 350] 89 0183 0904 0352 0374 0580 074040 0. Sk 2 a] 8520 1.30 10.45 7.70 650) 90 0110 0270 0321 0430 0654 0808220 th De ia OM4 1118 110A | Est vol 300 Wa 124 calls 30 puts * | Est vol 3077 Wd 1,788 calls 676 puts20 eth BYe 19420 178% | Op int Wed 14,097 calls 14,686 puts Op int Wed 77,553 calls 23,889 puts240 % th 42 _.. 2% 285i | Coftee (NYBOT) Natural Gas (NYM;Est vol 25,000 Wd 10,993 calis 6,347 puts 37,500 ibs.; cents per Ib. 10,000 MMBtu.; $ per MMBtu.Op int Wed 265,371 calls 147,975 puts STRKE _CALUS-SETTLE  __PUTS-SETTLE | STRKE - -Soybeans (CBT) PRICE oy Jun Mi Jun 4 PRICE x May Jun i Jun5,000 bu. cents per bu. 55 6. 946 9 035 055 1.00 | 485 ‘ a ATG M. ww OTSTRIE : 515 444 747 810 095 105 1.701400 17433) t47 271381PRICE “Apr May dy May iy 60 00 588 657 1.0 195 265] 405 149 305,12 205.OSB, BD 44d 5.29340 300 3.85] 500 1130 283 a0 208 308A400, 28 HB Sh | BS 1.20 340 4.25519 5.29] 505342258 7235 3B.40-8 13% 2% BY 12M | B75 «O75 250 340 723 603 692] 510 096 238 354 289 37844400 1h Ba 15M 15% 1 Hed 198 cal 1.213 put Est vol {5918 Wd na calls na putshh Oe ale Wed calls 14,659 puts Op int Wed 168,492 was 212,884 puts
ve mM Be Ae OT}it vol 15,000 Wa 16691 calls 6,884 puts ts per Ib.
Op int Wed 122,249 calls $3,376 puts PUTS: wit 1S: eh menUTS: SETTLESoybean Meal (CBT) May Jun sy PRICE 5 Mey Jun Wi09 tons; $ per ton 0.70 081 0,06 028 0,39 | 2400 1 ie 2 0 ded 12!IKE 45 056 015 (053 O64} 2450 1.20 178 220 069 106 14127 0.38 0,39 085 0.98] 2500 093 154 192 092 132 1.8316 025 072 123 1.92] 2550 O71 132 166 1.20 160 18710S ONG 4 155 173 | 20 O83 LT Lag 1S 18 2to oe 0s On tao 212 218] 2650 039 092 123 188 220 244Est wal 5209 Wd 5.92 calle. 1.695 pus Ea wl 700 Wd GUD cals putsOp int Wed 68646 calls 52,440 puts Op int Wed 2,199 cals 12,408 putsCocoa (NYBOT) Gas Oil (IPE)10 metric ton Perton 100 metric tons; $ per tonSoybean oll (CBT) PACE ape din J tay | pee Se ;it un$0,000 tbs.; cents Per ib, 900 ” 195 14 my 8 15 BRIE fe i we 4 Aur 5 ja0 759707 101830) ans00 S60 1200 1520 3a 800 985race et apr wy} 1000 B83) 21000 7.00 S50 1265775 10.50 12401 M 030 090 160) 1050 427 H_CiC iD21500 485 7.85 1045 1060 1365 15.20(a0 0 20 | 9% BB HS) com ats 618 855 1390 1715 1801 250 @ 920.200 400 500 | 1150 1 142 137 162 | >9599 200-470 «6.5 70 270165 100.280 10) 520 re ‘a Hetl 2.376 Wd 36 cally 450 pls Est vol 175 Wd 1810 cals D puisiB fe a : 1.090 4.120 | Op int Wed 25,586 calls 18,254 puts Op int Wed 3799 calls 487 gutsBeale 2 onint is.Wheat ce) . mt Grade OU LIVESTOCK5, u.; cents per bu. s. Cattle-Feeder (CMESTRKE _ GALLS-SETILE . Sime CALS See purs-sertue 50,000 tb ents er Ibaee a | a fe a
we 4 V7 |16 Bee] 28GB 213 OD az BME Mar Apr May Mar Mar May270 gan sk Bt nal deo Oo I tee Ob ie tae 6500 088 1300 OO) Oka gy SONG Ba 2 ae ie Ble :
% Mh 12 95 158 1, xm 7 % 1D30k mm OO 88 1413 145 7 215) 9000 OD 1 Nib A 0% 12510Est vol 12000 WA 1387 cas 1.18 pus Fa ol SUS We 16822 cals 2974 pus 8700 0.05 "Op int Wed 72,666 calls 50.935 puts Op int Wed 298,568 calls 266,294 puts Est vol 628° Wal 376 calls 787 .Cotton (NYBOT) Heating Ol! No.2 (NYM) op a Wel 5083 ¢ ca is50.0 00 ibs.; cents per Ib, 42,000 if $ per gal. Gatto Live ( (CME)
A Way Oct Tor Mt . 10,000 Ibs.; cents per tb,
8 a ti 60285 038 0981 0140 a3] cata | STAKE — IS SETI49 om 1.90 0390 PRE Apr Jun Au aM dun Aug50 470 303 161 q 0634 | 76 242 055 0.67 vo51 16 27 2. a { I A { TW 170 02 1. O72 ..
52 0.93 2.02 283 271 0100 0179 0238 0335 0590 .0683)78 = 1.15 022 080 Li?53088 171 358 3.38 m4 ‘OVA (0208 0419 0664 0732179 «70 08,72.
Est vol 00 We 3.19 cal 1.22 pts Est vol 4,562 Wd 1,872 calls 1,373 puts 80040 007 022 242,
Gp int Wed 73,892 calls 39,850 puts Op int Wed 37,794 calls 25,749 puts 802. 325 8.42
 
 
 
   
 
 
  
 
 
 
  
 
  
 
(continued on next page) 
Source :
Options on Stock Indices, Currencies, and Futures
Table 13.5 (continued)
 
Est vol 3,375 Wd 1,688 calls 2.277 putsOp int Wed 32,648 calls 63,310 puts
Hogs-Lean (CME)40,000 Ibs.; cents per ib.tae ap .
dun Agr un‘) 347) 792 567) 1.80 1.10 2b8% «287 7200. 215.6 232 655 445 265 1.70 32587 185 597 we 21068 150 537 34. 250 420fs 1.20 4.80 woe 290 owEst vol aes Wa 491 calls 568 puts.Op int Wed 7,267 calls §,910 puts
METALSCopper (CMX)25,000 Ibe.; cents per Ib,STRIKE =PRICE Wey a Ap May Jun6 ATS, O15 080 12076 4.25 ee 045 1.25 1.7080 170 295 380 110 190 250080 185 280 2.20 280 3.5094 03 £15 205 370 410 470% =—60.10 065 140 650 660 610Est vol 125 Wd 26 calls 69 putsOp int Wed 2,926 calls 942 puts
Gold (CMX)100 troy ounces; $ per troy ounceSTRIKE ETTLE LEPRIE dun Aug May 91400 14.20 1690 1.50 20 47094 1520 123 220 380 5.1060 7.60 1050 390 630 700390 540 850 690 7.70ey 390 670 10.20 11.80290 5.50 14.30 15.60Est vol soto vi 5,232 calls 2,333 putsOp int Wed 221,107 calls 68,332 putsSliver (CMX)5,000 troy ounces; cts per troy
Re
Saks
mS 05 «652 662 03
wm 83 410 417 105 138 195 20 354 633 80 95 180475 130 34 «(63 4100) 08 22 32 855Est vol 1.500 Wd 1,708 calls 498 putsOp int Wed 37,475 calls 12284 puts
INTEREST RATE
T-Bonds (C8
T)$100 000; points ~ 64ths of 100%RE _ CALLS-SETTLE_
Pate Ap May dun May =r1 AL 236-261 oo te O54105 1-20 154 220 ON te 1-13106 O4t 118 1-49 O82 1-00 141107 O18 O54 1-19 1-08 1-48
106 0-05 OM O80 161. 28e109 O01 019 084 38Est vol 53,000;
Wd vol 42,385 calls 34,000 puts
Op int Wed 239,69t calls 181,312 putsT-Notes (CBT)
$100,000; points - 64ths of 100%STRIKE __CALLS-SEITLE -§
PRICE May Jun Jun105 ih 163 2:10 oa a 44106045 1-1Y 1-33 O16 O45 14107 G6 Sw108005 05 OT108 02 044 030 2-35
NO BOL BIG aan saeEst vol 65,000 Wd 44,195 calls 41,055 putsOp int Wed 346,907 calls 249,181 puts
5 Yr Treas Notes (CBT)$100,000; points - G4ths of 100%
   
  
STRIKE 8100 312 051 098 1.44PRICE May Jun Apr Jun | 0150 0& 113.
t41 213 1-37 430-16 0-30 | 8200 1.32 18030500 0-47 147 0.07 0-44 154 20210850 0-26 1.98 178 226
1-23 063 018 038 O8670800 O43 1-01 48 05510650 is O45 0-36Est vol 23,000 Wd 12507 calls 10,564 puts
Op int Wed 126217 cals 97,191 putsEurodollar (CME)
lion; pts of 100%Srint waist passer
 
PRICE
$450 5.92 th al 000 abs ta
9475342 780. «(0.00 0.00 O07
0G 095 «5.30 550 002 0M Oz
ge 005 315 335 162 036000 150 10
se $00 065 ve398,
st vol 233,i vol eealt calls 101.599 putsOp int Wed 1,045,759 calls 1,911,981 puts1 Yr. Mid-Curve Eurodir (CME}$1 million contract units; pts of100%
STRIKEPRICE3475
S10 Ww 60,260 ‘cats 31,975 putsVed 671,496 calls 480,417 puts
2 Yr. Mid-Curve Eurodir (eM)$1miillon contract units; pts of
  
Feat 250 0
 
tp mn ed Se 88 cs 968 puts
Eurlbor (LIFFE}
Euro 1,000,000
ae Nt
PI
$5000 0.25 058 0.58
95125 O12 046 046
0.01 (033 0.34 se
9975. 022 0.24 1 0.03
en oe 015 025 003 0060.09 0.57 008 013
Vol Th 48685 cals 9/889 puts
Op int Wed 000,103 calls 752,704 puis
10 Yr. German Euro Gov't Bd(Eurobund) (Eurex}100,000;pts In100%
0.11050 0.06 0.26 0.50 114 1.3511100 0.01 O17 0.38 152 1.72
137Vol Th 55.671 gale 2.0 psOp int Wed 586,672 calls 353,718 puts
CURRENCYJapanese Yen (CME)500,000 yen; cents per 100 yen
STRIKEPRIE = Apr ay don Apr8050 wee ne 058
 
 
8300085. 125
» | Est vol 3,247 Wa 8,400 calls 9,234 putsOp int Wed 39,710 calls 38,759 putsDeutschemark (CME)125,000 marks; cents per markSTRIKE
—PUTS-SETTLEPRE “Ap May Jun Ap May Jun
 
-» | Est vol 6 Wd 1 calls 1 puts- | Op int Wed 440 calls 19 puts. | Canadian Doliar (CME)
100,000 Can.$, cents per Can.$STRIKE _CALLS-SETTLE _
PRE “ay May in Agr May J
vem AME, ORL 096. otT 033 O5twm, 080 085 053 (07202 of .. O64 .. 098010 025 a6 i 102 116 131
0.05 0.26 147Est vol 176 Wd 376 calls 376 puts
  
PESESRE
* 1 Op int Wed 15,899 caits 3,557 puts
~~ | British Pound (CME)
“162,500 pounds; cents per pound"| STRIKE __CALLS-SETTLE _ i
se ™17228382
PRIEE = Apr1420 oe
       
Swiss Franc (CME)
125,000 francs; cents per francsia CAULSSEITLE _ PUTS.SETTLEApe May Jun Ape May Jun
St ea
 
 
a if js500. 1.005850 os ” su$9000.57 om 1.465950 (0.39 eyo000 OF 2.08Est vol 410 Wal 79 calls “a ptsOp int Wed 6,888 calls 3,000 putsINDEX
DJ Industria Avg (CBOT)
May101 005 3020 750 2070102 0.05 2485 3500 1750 3430403 0.05 2050 750 39.95
 
Est vol 1,100 Wa 974 calls 1,839 puts
Op int Wed 7.614 calls 11,906 puts
SAP 800 Stock Inox (CME)250 times jum
SIME CALLSSETTLE
—_PUTS-SETTLE _PRICE Mar Apr May = Mar May
 
B70 4780 1340 39.00 52201190 10 36.00 45.40 17.80 41.30 5450
dun | Est vol 24g Wd 30.913 calis 32.915 puts
 
4.291 Op int Wed 111,49 calls 220,300 puts
 
Reprinted by permission of Dow Jones, Inc., via copyright Clearance Center, Inc.
© 2001 Dow Jones & Company, Inc. All Rights Reserved Worldwide.
281
 282 CHAPTER 13
enter a Treasury bond futures contract. As mentioned in Chapter 5, one Treasury bond futurescontract is for the delivery of Treasury bonds with a face value of $100,000. The price of a Treasurybond futures option is quoted as a percentage of the face value of the underlying Treasury bondsto the nearest 2, of 1%. Table 13.5 gives the price of the April call futures option on Treasurybonds as 2-11 or 2U% of the debt principal when the strike price is 104 (implying that onecontract costs $2,171.87). The quotes for options on Treasury notes are similar.
An option on Eurodollar futures is an option to enter into a Eurodollar futures contract. Asexplained in Chapter 5, when the Eurodollar futures quote changes by one basis point, or 0.01,there is a gain or loss on a Eurodollar futures contract of $25. Similarly, in the pricing of optionson Eurodollar futures, one basis point represents $25. In the shortest maturity contract, prices arequoted to the nearest quarter of a basis point. For the next two months they are quoted to thenearest half basis point. The Wall Street Journal quote for the CME Eurodollar futures contract inTable 13.5 should be multiplied by 10 to get the CME quote in basis points. The 5.92 quote for theCME March call futures option when the strike price is 94.50 in Table 13.5 indicates that the CMEquote is 59.25 basis points and one contract costs 59,25 « $25 = $1,481.25; the 10.30 quote for theApril contract indicates that the CME quote is 103 basis points; and so on.
Interest rate futures contracts work in the same way as other futures contracts. For example, thepayoff from a call is max(F — K, 0), where F is the futures price at the time of exercise and K is thestrike price. In addition to the cash payoff, the option holder obtains a long position in the futurescontract at exercise and the option writer obtains a corresponding short position.
Interest rate futures prices increase when bond prices increase (i.e., when interest rates fall). Theydecrease when bond prices decrease (i.e., when interest rates rise). An investor who thinks thatshort-term interest rates will rise can speculate by buying put options on Eurodollar futures, andan investor who thinks that they will fall can speculate by buying call options on Eurodollarfutures. An investor who thinks that long-term interest rates will rise can speculate by buying putoptions on Treasury note futures or Treasury bond futures, and an investor who thinks they will
fall can sneculate by buying call options on these instruments
RRR NR ON RRR IN NET ENED RAR ES UAB NESE NERA NAAR RANGING BBANIRA NARAANG BAS LT
Example 13.7 Suppose that it is February and the futures price for the June Eurodollar contractis 93.82. (This corresponds to a three-month Eurodollar interest rate of 6.18% per annum.) The priceof a call option on this contract with a strike price of 94.00 is quoted as 0.20. This option could beattractive to an investor who feels that interest rates are likely to come down. Suppose that short-terminterest rates do decline by about 100 basis points over the next three months, and the investorexercises the call when the Eurodollar futures price is 94.78. (This corresponds to a three-monthEurodollar interest rate of 5.22% per annum.) The payoff is 25 x 78 = $1,950, The cost of thecontract is 20 x 25 = $500. The investor’s profit, therefore, is $1,450.
Example 13.8 Suppose that it is August and the futures price for the December Treasury bondcontract traded on the CBOT is 96-09 (or 963 = 96.28125). The yield on long-term governmentbonds is about 6.4% per annum. An investor who feels that this yield will fail by December mightchoose to buy December calls with a strike price of 98. Assume that the price of these calls is 1-04(or if= 1.0625% of the principal). If long-term rates fall to 6% per annum and the Treasurybond futures price rises to 100-00, the investor will make a net profit per $100 of bond futures of
100.00 — 98.00 — 1.0625 = 0.9375
Because one option contract is for the purchase or sale of instruments with a face value of $100,000,the investor would make a profit of $937.50 per option contract bought.Options on Stock Indices, Currencies, and Futures 283
Reasons for the Popularity of Futures Options
It is natural to ask why people choose to trade options on futures rather than options on theunderlying asset. The main reason appears to be that a futures contract is, in many circumstances,more liquid and easier to trade than the underlying asset. Furthermore, a futures price is knownimmediately from trading on the futures exchange, whereas the spot price of the underlying assetmay not be so readily available.
Consider Treasury bonds. The market for Treasury bond futures is much more active than themarket for any particular Treasury bond. Also, a Treasury bond futures price is known immedi-ately from trading on the CBOT. By contrast, the current market price of a bond can be obtainedonly by contacting one or more dealers. It is not surprising that investors would rather takedelivery of a Treasury bond futures contract than Treasury bonds. .
Futures on commodities are also often easier to trade than the commodities themselves. Forexample, it is much easier and more convenient to make or take delivery of a live-hogs futurescontract than it is to make or take delivery of the hogs themselves.
An imrportant point about a futures option is that exercising it does not usually lead to deliveryof the underlying asset. This is because, in most circumstances, the underlying futures contract isclosed out prior to delivery. Futures options are therefore normally eventually, settled in cash. Thisis appealing to many investors, particularly those with limited capital who may find it difficult tocome up with the funds to buy the underlying asset when an option is exercised.
Another advantage sometimes cited for futures options is that futures and futures options aretraded in pits side by side in the same exchange. This facil