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 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 and the exercise price, then subtracting the premium paid. The futures price is 97-14 (or 97.4375), and the exercise price is 92-10 (or 92.3125). The difference is 5.125 points. Each point is worth $1,000, so the gross gain is $5,125. The premium paid is 2-24 (or 2.75 points), which is $2,750. The net gain is $5,125 - $2,750 = $2,375. Therefore, the correct answer is not listed, so it should be "none of the above."

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