options on interest rate futures

Discussion in 'Index Futures' started by CaroKann, Aug 19, 2001.

  1. I heard on the radio today that the market has priced in a 100% chance the fed will lower interest rates by 25 bp, and 20% chance the fed will lower by 50 bp. Where can I get price quotes on the short term interest rate futures and options that the fed will lower? I am wondering how much premium there is to be collected for betting against the 50 bp cut. e.g. if these options existed, I would like to sell/short a "50bp call" in the fed short term rates. Where can I get price quotes on this, or perhaps some other product that has a high correlation..
  2. Htrader

    Htrader Guest

    The news stories often talks about the Fed Fund future, which trades on the chicago board of trade, http://www.cbot.com. I'm not sure though if that future has underlying options.

    Personally, I prefer to trade eurodollars futures, which are the most liquid interest rates futures. Go to http://www.cme.com and click on prices to get a quote on the eurodollars. The eurodollar contact predicts the LIBOR rate a set time in the future. The June 2002 contract reflects the price that traders think the LIBOR will be at in June of 2002. All the prices are in the form of 100 - LIBOR rate. So if the market thought the libor in june 2002 was going to be 4%, then the june 2002 contract would be trading at 96.00. If you thought the LIBOR was really going to be at 3.5%, then you would go long the contract hoping the price would go to 96.5.

    As for your option, it takes ALOT of margin to sell naked calls on the eurodollar. Much better for you to simply buy one eurodollar contract in the time period you think the market is mispricing. But be sure to check market prices since the regular news often misreports on the true interest rate level that the markets are predicting.