4. As explained in Chapter 59, futures options on Treasury bonds are used more commonly by institutional investors. The mechanics of futures options are as follows: If a put option is exercised, the option buyer receives a short position in the underlying futures contract and the option writer receives the corresponding long position. The futures price for both positions is the strike price for the put option. The exchange then marks the positions to market and the futures price for both positions is then the current futures price. If a call option is exercised, the option buyer receives a long position in the underlying futures contract and the option writer receives the corresponding short position. The futures price for both positions is the strike price for the call option. The exchange then marks the positions to market and the futures price for both positions is then the current futures price.

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