SOFR options let a buyer pay a premium for exposure to a price move over a limited period. The examples below explain a call and a put on a named futures contract, including the premium, profit, loss and breakeven.
How SOFR options work
The example uses an option on Three-Month SOFR futures. One full price point is USD 2,500. The futures quote is 100 minus the implied rate: 96 corresponds to 4%. A call benefits from a higher futures price and lower implied rate; a put benefits from the reverse.
The example trade
Assume the underlying starts at 96 price points. One option has a strike of 96, a premium of 0.1 and a multiplier of 2,500. The total premium is USD 250. Prices and premiums are hypothetical; the call and put use equal premiums to make the comparison easy.
The following results are at expiration, before fees. If exercise creates another position, the calculations assume that position is immediately closed at the stated value.
Buying SOFR calls
You buy the call because you expect the underlying price to rise. At 96.3 price points, the right at the strike is worth (96.3 − 96) × 2,500 = USD 750. After the premium, your profit is USD 500.
At 96 or below, the call expires without intrinsic value and loses its USD 250 premium. Its expiration breakeven is 96.1 price points. At 96.05, the price has risen but the trade still loses USD 125.
Buying SOFR puts
If you expect a fall instead, the put costs USD 250 in this example. At 95.7 price points, it is worth (96 − 95.7) × 2,500 = USD 750. Your profit is USD 500 after the premium.
At 96 or above, the put loses its entire premium. Its expiration breakeven is 95.9 price points. A smaller fall to 95.95 still leaves a loss of USD 125.
Before expiration
You can sell an option to close when a market is available. Its resale value also depends on time remaining and implied volatility, so the expiration breakevens do not determine every earlier trading result.
The purchased option can lose its full premium. Exercise may create a separate position or funding obligation. Selling an uncovered option can produce losses larger than the premium received.
SOFR price chart
This is a continuous futures price chart, not a yield chart or the exact underlying contract month. For SOFR, higher futures prices correspond to lower implied rates; Treasury prices generally move inversely to yields.
Open SOFR price chart on TradingView. The external chart is market context, not an executable option quote.
