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An FI manager writes a call option on a T-bond futures contract with an exercise price of

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An FI manager writes a call option on a T-bond futures contract with an exercise price of 11400 at a quoted price of 0-55.
a. What type of opportunities or obligations does the manager have?
b. In what direction must interest rates move to encourage the call buyer to exercise the option?
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a The manager is obligated to sell the interest rate futures contract to the call option ...View the full answer


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Rohail Amjad
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A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.

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