Summary
There is a strategy that allows you to profit from changes (or non-changes) in interest rates. The strategy is option selling. Option selling is a strategy that eliminates the need to predict when and where the market will move. In exchange for eliminating windfall gains, option selling offers smaller consistent gains over and over. There is a risk in this strategy that the option could move in the money, but the risk is no more than that of a futures contract. For option sellers, it is only important where prices won't go. The risk to the seller is that the underlying market price moves beyond the strike price of the option. Other risk-management strategies include using stop orders or writing covered options -- also known as credit spreads -- for the more conservative investor. However, options can be bought or sold any time prior to expiration.
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Extract
Collecting Premium, with Help From the Fed
In 1975. the Chicago Board of Trade (CBOT) introduced interest rate futures to meet a growing demand for products that could protect against fluctuations in the cost of borrowing money. Treasury bonds and later T-notes became the most liquid futures markets as banks, investment firms and private funds all used the Treasury products to hedge against movements in interest rates.
Yet, at a time when interest rates and the cost of borrowing are at the center of not only financial but mainstream news media, most individual investors know little about trading these markets, and e...See the full content of this document
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