What is exchanged when a put option on an interest rate futures is exercised?
A) A long position in a futures contract for the holder of the option and a short position in a futures contract for the option writer
B) A short position in a futures contract for the holder of the option and a long position in a futures contract for the option writer
C) Cash payoff, a long position in a futures contract for the holder of the option, and a short position in a futures contract for the option writer
D) Cash payoff, a short position in a futures contract for the holder of the option, and a long position in a futures contract for the option writer

Question

Quizplus · Accepted Answer

When a put option on an interest rate futures is exercised, the holder of the option receives a cash payoff and holds a short position in a futures contract. The option writer receives the opposite: a long position in a futures contract and pays out the cash payoff. Therefore, the correct answer is D.

What Is Exchanged When a Put Option on an Interest