Treasury Bond 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 Treasury Bond options work
The example uses a standard Treasury Bond future with USD 1,000 per full price point. A call benefits from higher futures prices, generally associated with lower yields. A put benefits from lower prices. The contract is distinct from Ultra Treasury Bond futures.
The example trade
Assume the underlying starts at 120 price points. One option has a strike of 120, a premium of 1 and a multiplier of 1,000. The total premium is USD 1,000. 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 Treasury Bond calls
You buy the call because you expect the underlying price to rise. At 123 price points, the right at the strike is worth (123 − 120) × 1,000 = USD 3,000. After the premium, your profit is USD 2,000.
At 120 or below, the call expires without intrinsic value and loses its USD 1,000 premium. Its expiration breakeven is 121 price points. At 120.5, the price has risen but the trade still loses USD 500.
Buying Treasury Bond puts
If you expect a fall instead, the put costs USD 1,000 in this example. At 117 price points, it is worth (120 − 117) × 1,000 = USD 3,000. Your profit is USD 2,000 after the premium.
At 120 or above, the put loses its entire premium. Its expiration breakeven is 119 price points. A smaller fall to 119.5 still leaves a loss of USD 500.
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.
Treasury Bond 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 Treasury Bond price chart on TradingView. The external chart is market context, not an executable option quote.
Other contract sizes and quotations
Treasury prices may use fractions: 110-16 means 110 plus 16/32, or 110.50. The 2-year note future uses USD 2,000 per full point, unlike the USD 1,000 example here. Read the contract guide before applying these numbers to another maturity.
