Posted by Ben (NJ) on October 05, 2001 at 13:08:27:
Yes, I have had a headache since May since I started debating this. It cost $27,000. Actually, I was going to do it the other day but couldn’t get to it but luckily the price fell from $31,000 to $27,000 so I already saved $4,000. My brother is a pretty sophisticated options trader and when I explained the scenario to him he immediately mentioned a “swaption”.
I thought he was joking but the guy at the bank knew exactly what I was talking about. Made me look pretty
smart throwing terms like that around! LOL
Locking in rates…finally did it… - Posted by Ben (NJ)
Posted by Ben (NJ) on October 04, 2001 at 21:54:40:
well almost. I discovered an interesting alternative to
locking in. It’s called a “swaption”. I purchased a call option today which gives me the right, but not the obligation, up to Jan 1, 2002 to lock in my credit line at 5.09%. At that time if interest rates have risen, I am in great shape, I lock in at 5.09 yet still have gotten the benefit of the even lower floating rate for the next few months. If rates drop considerably I am still in great shape, I have lost the option premium but have offset the cost by locking in at a much lower rate than I could have today. The worst case scenario is if rates don’t really do anything up or down, which isn’t likely, the option expires worthless and I have lost my premium payment. All in all, a pretty good alternative to committing myself at such a volatile time.