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 (97-14) and the exercise price (92-10), then subtracting the premium paid (2-24). The futures price difference is 5-04 (or 5.125 in decimal), and the premium is 2-24 (or 2.75 in decimal). The net gain is (5.125 - 2.75) * $1,000 = $2,375. However, the correct calculation should be based on the tick value, which is $31.25 per tick for Treasury bond futures. The net gain is (5.125 - 2.75) * 32 * $31.25 = $2,687.50.

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