Hello,
Can someone please explain to me how to use call and put options on Eurodollar futures to hedge against interest rate movements?
Which to use when hedging against increases and decreases?
And also for the future itself is long equivalent to lending and short equivalent to borrowing or do I have it wrong?
The way I think it is, is that the underlying asset is an interest bearing asset so if I am borrowing I am selling that asset(going short on the contract) and if I am lending then I am buying the asset (going long on the contract) and so entering a call option on a futures contract(buying the futures) is equivalent to locking in a rate to lend money and put option is locking in a price to borrow money (selling the futures contract) so the put on interest rate futures is for hedging against interest rate increases and the call is for hedging against interest rate decreases. Is this correct?
I know this is long to read but I could really use some help, thanks in advance