For the sake of simplicity, taxes, commissions and other trading costs have been omitted from the discussions and strategies in this discussion; these should be taken into account when making your investment decisions. The strategies are based on hypothetical situations and should only be considered as examples of potential trading approaches.

Scenarios:		Scenario I Investor expects rising 30-year interest rates.	Scenario II Investor expects falling 5-year interest rates.	Scenario III Holder of T-bills expects rising short-term rates, falling long-term rates.	Scenario IV Investor expects long-term rates to rise reducing the value of a fixed-income portfolio.
Strategies:		1. Buy TYX calls to profit from rising rates. 2. Sell TYX put spread to profit in a rising market.	1. Buy FVX puts to profit from declining rates. 2. Sell FVX call spread to profit from declining rates.	1. Sell T-bills, buy TNX puts to profit from interest rate expectations.	1. Buy TYX calls to offset the decline in value of a fixed- income portfolio.

Using options to implement interest rate strategies offers several advantages to transacting in cash Treasury securities:

Option buying involves a known and limited risk. Like any option, the most an option buyer can lose if interest rates move against him is the premium paid for the option. Unlike a Treasury security, however, an option can expire worthless. Uncovered option selling involves limited profit and unlimited risk. Like any option, the most an uncovered seller can make is the premium received and the risk is unlimited if interest rates move against him.

Options provide leverage. An option buyer pays a relatively small premium in relation to the value of the underlying security. If interest rates move as anticipated, substantial profits relative to the capital invested may be realized. If the interest rates do not move as anticipated, the buyer's risk is limited to the premium paid.

Options involve a specific time period. An option buyer can choose an expiration month which meets his time expectations for interest rates moves. Treasury securities do not have to move immediately for a buyer to profit on his option position. However, a move in the anticipated direction must occur by option expiration in order for the option position to become profitable.

In the following examples, we present a variety of possible option strategies for different interest rate forecasts. These are only a few of the strategies that might be employed. There are numerous other strategies, some more sophisticated than others, that may be used by investors who are experienced and understand how they work and when to use them. The examples discussed below are based on hypothetical situations, should only be considered samples of potential investment alternatives, and are presented for educational purposes only.

The positions are shown being held to expiration. It should also be noted that taxes, commissions and margin requirements have not been included in the following examples to simplify the explanations. They are important and must be taken into account when considering an actual trade, and when calculating actual net returns on any option transaction. These charges and requirements may vary, and should be discussed with your investment advisor.