Interest Rate Put Options http://www.options-trading-education.com/24028/interest-rate-put-options/ With the possibility at hand that interest rates may fall, interest rate put options could be profitable. As with all options trading interest rate put options require a sound options trading strategy. Unlike trading options on stocks or commodity futures, trading interest rate put options do not have to do with a specific company or a commodity such as gold, corn or oil. Rather interest rates are driven by the economy and by the actions of the United States central bank, the US Federal Reserve. The Federal Reserve is cutting back on its monthly bond purchases, the quantitative easing stimulus plan widely credited from keeping the country from falling into a long term depression. As the Fed stops pouring money into buying US Treasuries and corporate bonds it serves to let rates fall and the value of existing bonds to rise. With this factor at work one would jump on interest rate put options as rates would be falling. But, there are more factors in play that might make calls on interest rates profitable ventures. Interest Rate Options An interest rate option is a derivative contract. The value of that contract is based on interest rates, typically the ten year Treasury note. When traders believe that interest rates will go up they buy calls and when they believe that rates will fall they buy puts. A trader with a call contract makes money when interest rates rise and a trader with a put contract profits when rates fall. China, Europe and Housing Starts China has seen its growth rate slow down. The response of the central bank of China has been to buy US Treasuries. This drives up the value of the dollar on Forex markets and drives down the Chinese currency. In addition, it can serve to drive interest rates back up because of buying pressure on the market. In addition, the EU is still struggling to get out of the persistent recession on its Southern flank and its stimulus programs may also drive the dollar higher. And, economists are pleased on one hand that the value of family homes is on the rise and on the other hand that that rate of increase is leveling off. This means that people that were upside down on their mortgages are in better shape. And, what do these factors have to do with interest rates?

1. Interest Rate
Put Options

2. With the possibility at hand that interest
rates may fall, interest rate put options
could be profitable.

3. As with all options trading interest rate
put options require a sound options
trading strategy.

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5. Unlike trading options on stocks or
commodity futures, trading interest rate
put options do not have to do with a
specific company or a commodity such
as gold, corn or oil.

6. Rather interest rates are driven by the
economy and by the actions of the
United States central bank, the US
Federal Reserve.

7. The Federal Reserve is cutting back on
its monthly bond purchases, the
quantitative easing stimulus plan widely
credited from keeping the country from
falling into a long term depression.

8. As the Fed stops pouring money into
buying US Treasuries and corporate
bonds it serves to let rates fall and the
value of existing bonds to rise.

9. With this factor at work one would jump
on interest rate put options as rates
would be falling.

10. But, there are more factors in play that
might make calls on interest rates
profitable ventures.

11. Interest Rate Options

12. An interest rate option is a derivative
contract.

13. The value of that contract is based on
interest rates, typically the ten year
Treasury note.

14. When traders believe that interest rates
will go up they buy calls and when they
believe that rates will fall they buy puts.

15. A trader with a call contract makes
money when interest rates rise and a
trader with a put contract profits when
rates fall.

16. China, Europe and
Housing Starts

17. China has seen its growth rate slow
down. The response of the central bank
of China has been to buy US
Treasuries.

18. This drives up the value of the dollar on
Forex markets and drives down the
Chinese currency.

19. . In addition, it can serve to drive
interest rates back up because of
buying pressure on the market.

20. In addition, the EU is still struggling to
get out of the persistent recession on
its Southern flank and its stimulus
programs may also drive the dollar
higher.

21. And, economists are pleased on one
hand that the value of family homes is
on the rise and on the other hand that
that rate of increase is leveling off.

22. This means that people that were
upside down on their mortgages are in
better shape.

23. And, what do these factors have to do
with interest rates? Things that improve
the economy tend to raise
consumption, prices and the demand
for credit. Higher demand for credit
tends to raise interest rates.

24. Things that hurt the economy tend to
drive down consumption, prices and
the demand for credit and then interest
rates fall.

25. So, the Fed actions are not the only
game in town when it comes to whether
interest rates rise or fall.

26. Nevertheless, the near term prospect of
lower interest rates could make interest
rate call options a good deal.

27. As always do your own homework and
do not trade when you do not
understand.