Exercise of a put option on interest rate futures by the buyer of the option results in the buyer putting to the writer the bond futures contract at an exercise price higher than the currently trading bond future.

Question

Quizplus · Accepted Answer

In a put option on interest rate futures, the buyer has the right, but not the obligation, to sell the underlying bond futures contract at a predetermined price (exercise price). If the market price of the bond futures is lower than the exercise price, exercising the option allows the buyer to sell the bond futures at a higher price than the current market price, which is beneficial for the buyer.

Exercise of a Put Option on Interest Rate Futures by the Buyer