| econ T-bonds, profit, loss, premium?

econ T-bonds, profit, loss, premium?

julie asked:


# If you buy a put option on a $1000,0000 Treasury bond futures contract with an exercise price of 95 and the price of the Treasury bond is 120 at expiriation, is the contract in the money, out of the money, or at the money? What is your profit or loss on the contract if the premium was $4000?

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One Response to “econ T-bonds, profit, loss, premium?”

  1. csanda on June 6th, 2009 3:42 am

    Out of the money. It’s a put, which means that you have the option (but not the obligation) to force someone to buy the T-bond at 95. Since it’s a 120, you wouldn’t force them to buy a bond that is cheaper than it’s current price. Your loss is 4,000 because the put expires useless.