Chapter 02 · Section 2.1
IMM Futures
Suppose an IMM DM futures call option is exercised.
What is the effect of exercise?
a) The call holder receives dollars.
b) The call writer receives dollars.
c) The call holder receives a short futures contract.
d) The call writer receives a short futures contract.
e) The call holder receives a long futures contract.
f) d and e
Long futures contract: an obligation to take delivery (of DM in this case). Short futures contract: an obligation to deliver (DM in this case).
They cannot both receive a short futures contract. If somebody sells a futures contract, someone else must buy it.
There is no point in giving him both a short and a long contract, the two of them compensate each other.
They cannot both receive a long futures contract. If somebody buys a futures contract, someone else has to sell it.