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The Chicago Board of Trade (CBOT®) today announced that open interest in its new Binary options on the Target Federal Funds Rate contract exceeded 1,000 contracts on Friday, July 21 – only eight trading days following the contract’s introduction. The new open interest record, 1,032 contracts, exceeds the previous record of 962 contracts set on July 20, 2006.
Open interest represents the number of trading positions that have not yet been offset and closed at the end of a trading day and is considered by many to reflect the vibrancy of a market.
CBOT Senior Vice President of Business Development Robert D. Ray said, “We developed this contract at the request of market participants who desired direct exposure to the Target rate – and the open interest record is an indicator of the contract’s rising acceptance by the marketplace.”
The CBOT launched the electronically-traded Binary options on the Target Federal Funds Rate contract on July 12, 2006, further diversifying its product offering at the short end of the yield curve. The Target Federal Funds Rate is set by the United States Federal Reserve, typically at its Federal Open Market Committee (FOMC) meetings.
At expiration, binary options have two possible outcomes – final settlement is either a fixed dollar amount or nothing at all. When the options expire, “in the money” options pay $1,000 to option holders, while those that are “at the money,” or “out of the money” pay holders zero. Strike prices correspond to the Target Federal Funds rate using a formula of 100-minus the actual Target rate. Options usually expire on the last day of a regularly-scheduled FOMC meeting – they are cash-settled and based upon the most recent Target rate level.
For more information, visit the Binary Options section on cbot.com.
