Swaptions equivalent, Cheers, having, terms, calls

bcp901

In terms of put and calls what is a Pay Swaption equivalent to and what is a recevier swaption equivalent to??

I'm having a hard time understanding this concept.

Cheers

liquidity

you enter into a payer swaption to pay fixed.
you would enter into it if the price of the fixed portion is < Strike Price.

If you are thinking in terms of Put or Call options on a bond -- The fixed price would fall below the strike price for a bond when the Interest rate rises - and you have the option to then PUT the bond back.

(P)ayer Swaption=(P)ut option on BOND

So Re(C)eiver Swaption - likewise would be (C)all option on Bond.

CP

brainsX

I guess I am thinking of it as a call option on interest rates, as opposed to bonds.

ayaz_mahmud369

The call option on interest rates is an immediate risk/reward situation i.e. effective immediately.

If you want to hedge an exposure that is going to happen at some time in the future, you need the swaption.

The holder( buyer ) has a right to enter the swap when the swaption expires.

ninja1024

cpk123 Wrote:
-------------------------------------------------------
> you enter into a payer swaption to pay fixed.
> you would enter into it if the price of the fixed
> portion is < Strike Price.
>
> If you are thinking in terms of Put or Call
> options on a bond -- The fixed price would fall
> below the strike price for a bond when the
> Interest rate rises - and you have the option to
> then PUT the bond back.
>
> (P)ayer Swaption=(P)ut option on BOND
>
> So Re(C)eiver Swaption - likewise would be (C)all
> option on Bond.


Thanks yet again, a lot clearer in my head now!