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Vegawizard
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Joined: November 27th, 2006, 10:46 am

Interest Rate Options - Early exercise

December 30th, 2010, 9:20 am

Under what circumstances or for what reason would interest rate options (margined options on futures) be exercised early? Any ideas or explanations on this one?Thanks
 
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Alan
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Interest Rate Options - Early exercise

December 31st, 2010, 7:09 pm

Not really my area, but there used to be some strong year-end seasonals that might play a role:http://research.stlouisfed.org/wp/2003/2003-040.pdf
 
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Martinghoul
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Joined: July 18th, 2006, 5:49 am

Interest Rate Options - Early exercise

January 3rd, 2011, 1:08 pm

You need to be more specific, methinks... Specifically, are these STIR futures options or treasury futures options? Which specific exchanges?
 
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prodiptag
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Joined: September 12th, 2008, 4:41 pm

Interest Rate Options - Early exercise

January 4th, 2011, 6:04 am

This is a very interesting question and I do not have any clue, would love to know what others think. At the risks of hijacking the question, let's assume we are talking about STIR futures options on euronext?
 
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Vegawizard
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Joined: November 27th, 2006, 10:46 am

Interest Rate Options - Early exercise

January 4th, 2011, 7:52 am

My Question relates to the Euribor & STIRS traded on Liffe. They are margined options on futures, so PnL is settled daily via variation margin pmts, therefore I cannot understand the rationale for early exercise - but it happens from time to time - Why?
 
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natkins
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Joined: August 18th, 2005, 9:24 am

Interest Rate Options - Early exercise

January 4th, 2011, 10:18 am

It happens only occasionaly for two reasons in Euribor options.First, if the person trading has some sort of strange tax treatment of options compared to futures.Second, if a trader blows up and somebody liquidates his book (it can be cheaper than trading out of it with a broker after costs)Obviously it would normally be deep in the money options
 
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prodiptag
Posts: 124
Joined: September 12th, 2008, 4:41 pm

Interest Rate Options - Early exercise

January 4th, 2011, 12:41 pm

QuoteOriginally posted by: natkinsIt happens only occasionaly for two reasons in Euribor options.First, if the person trading has some sort of strange tax treatment of options compared to futures.ah, tax, of course, strange things happens due to tax reasons, people have even been known to spend a year dead!!
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