The thirty-year Treasury bond futures price, and the 30-year T-bond option price are not the same thing. Option price valuation is not as straightforward as futures valuation. Option premium is comprised of intrinsic value and extrinsic value. 

An option has intrinsic value if the market is trading above the strike price of a call option, or below the strike price of a put option. If an option contract has intrinsic value it is called "in the money." If an option contract does not have intrinsic value it is called "out of the money."

For example:

If the 30-year T-bond is trading at 120-220, a 110 call option is 10 22/32 in the money so the intrinsic value of the option is $1,068.75.

The extrinsic value of the option is its "time value." Extrinsic value takes into account the possibility that an option may go in the money by expiration. The more time that an option has, the more extrinsic value it has. As an option approaches its expiration date, it loses value. This is called time decay. At expiration, an option has no extrinsic value so if the option is out of the money it expires worthless.

Thirty-year Treasury bond option prices do not move in tandem with 30-year T-bond futures prices. A 1-point move in your favor in the 30-year T-bond futures markets does not necessarily equal to a 1-point increase in the 30-year T-bond option value. The amount that an option value will increase based upon an increase in its futures price is called its delta. Call option deltas are measures from 0 to 1. As an option goes from "out of the money" to "in the money" its delta increases.

For example:

If a 30-year T-bond call option has a delta of .5 and the price of the 30-year T-bond futures market increases by 1 the value of the option will increase by .5 or $50.

If you are a speculator with a limited amount of risk capital then 30-year T-bond options may be the best way for you to invest in the 30-year T-bond market.

Click here to view the current price of 30-year T-bond options.