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Looking at Eurodollar IR options market data coming down from CME, I can see a whole host of options where the strike is > 100 bps.

My understanding in this case is that puts will always be in the money and calls always out, so I was wondering why these may exist?

Any thoughts or facts of the subject would be appreciated.

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1 Answer 1

You assume that interest rates are never negative, however, all kinds of strange things happened already in the recent years, e.g. the Euroswiss futures traded above 100 in August 2011, SARON is negative (http://www.six-swiss-exchange.com/indices/swiss_reference_rates/reference_rates_en.html), German short term debt (Schatz) traded with negative yields this winter (http://www.bloomberg.com/quote/GDBR1:IND/chart/).

My understanding is that it's an unlikely situation, yet possible.

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