MythosHF

i think (and someone please correct me if I'm wrong) that there are different rules for call options on things directly affected by a change in interest rates (eg interest rate options, bond options etc) compared to call options on other things like stocks.

For call options on stocks, an interest rate rise will increase the value of the option (for the reasons AndyNZ and max outlined above).

But a call option on a bond essentially gives you the right to buy the bond at a certain price. If interest rates go up, the market price of the bond will go down, so the call option will lose value.

And a call option embedded in a bond (like the one sgupta described above) will also decrease in value if interest rates rise, because it's less likely that the bond will be called.

hope that makes sense and I'm on the right track with this, if not, please let me know