You can enter into a variety of options including interest rate options and currency options.
Interest Rate Options
An interest rate option is an agreement giving the buyer the right, but not the obligation, to fix at a point of time in the future, either the rate of interest on a notional deposit or loan, or the price of an instrument such as a futures contract or security, where the price is normally determined by reference to interest rates. The buyer is protected against an adverse movement in interest rates, while retaining the ability to benefit from a favourable movement.
A bond option gives the buyer the right to buy or sell a given fixed or floating interest rate security at a specified rate, on or before a specified future date.
An interest rate cap agreement enables a borrower of floating rate debt to place an upper limit on interest rate exposure. The seller of the interest rate cap agrees to compensate the borrower for any excess of interest costs above the cap level, based on a stated notional principal amount. The buyer of a cap is required to pay a premium, which may be expressed as a percentage of the principal value of the cap, or as an absolute amount to be paid.
An interest rate floor agreement works in the same way as a cap, but in reverse. It is an option product for which the seller receives a premium for losing his right to borrow more cheaply if market rates of interest fall below a certain level.
A collar is a combination of a purchased cap agreement and a written floor agreement, or vice versa. A borrower, who purchases a cap and simultaneously writes a floor with the same party, obtains protection against interest rates rising above the level specified in the cap, while losing the potential benefit of rates falling below the level specified in the floor. The initial cost of such a collar is normally less than that of a cap in isolation, because the premium payable on the purchase of one is offset by the premium earned on the other.