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Options on Interest Rate Swap futures are a valuable addition to the risk management toolbox of traders and institutional investors. These options on 5-Year, 7-Year, 10-Year and 30-Year Swap futures offer investment and risk managers—including asset managers, mortgage servicers, bank treasurers, money managers, and hedge funds—a vehicle for expressing views on swap rate volatility and for managing convexity exposure.
Moreover, options on Swap futures replicate the European-style convention of OTC options with exercise taking place only at expiration, providing market participants with a familiar tool that has the added benefits of central counterparty clearing.
Four quarterly and two serial contracts will be listed. Trading will begin with the Sep 09, Dec 09, Mar 10 and June 10 quarterly options, and the Aug 09 and Oct 09 serial options.
Block trading is available for options on Swap futures with a minimum threshold of 500 contracts--and block surcharges have been waived for both Swap futures and options on Swap futures through the end of the year.
In addition to their usual risk management applications, these options can aid investors and debt issuers in executing a variety of strategies.
| • | Asset Managers who may have restrictions on the use of OTC derivatives will have the flexibility to participate in swap-related options transactions, allowing them to better manage the optionally embedded in their holdings of spread product. |
| • | Hedge Funds will have a cost-effective means to express views on swap rate volatility, with lower administrative and legal expenses than OTC alternatives. |
| • | Mortgage Servicers who hold OTC swap option books can use Options on Swap futures to mitigate the exposure to counterparty credit risk. |
| • | Mortgage Passthrough Traders will be able to trade Options on Swap futures in smaller to more moderate denominations than OTC swap options, and with positions that will be easier to liquidate. |
| • | Bank Treasury Officers can use Options on Swap futures to cap, floor, or collar medium- and long-term interest rate exposure with greater accuracy and less basis risk than other exchange-traded options. |
Resources
Options on Swap Futures Vendor Codes
Options on Swap Futures Contract Specifications
Options on Interest Rate Swap Futures Fact Card
Interest Rate Swap Futures Fact Card
