Marcie purchases a call option on interest rate futures with an exercise price of 92-10. The premium on the call option is 2-24. Just before the expiration date, the price of Treasury bond futures (which will have a face value of $100,000 at maturity)is 97-14. At this time, Marcie decides to exercise the option and closes out the position by selling an identical futures contract. Marcie's net gain from this strategy is $____.

Question

Quizplus · Accepted Answer

Marcie's net gain is calculated by finding the difference between the futures price at exercise (97-14) and the exercise price (92-10), subtracting the premium paid (2-24), and then multiplying by the contract size ($100,000). The calculation is: ((97-14) - (92-10) - (2-24)) * $1,000 = 2,687.50.

Marcie Purchases a Call Option on Interest Rate Futures with an Exercise