Swaptions

Are buying payer swaption and selling receiver swaption the same?

Yes

When you buy option, you pay option premium; when you sell option, you collect the premium.

but the payment flow is the same from your point of view.

Buy payer swaption gives you the right to exercise the swap when rates rise above X; you will pay fix/receive float

Sell receiver swaption, you have to honour the swap when the buyer exercise when rates fall below X; you will pay fix/receive float

Do correct me if I’m wrong.

Absolutely… NOT.

The buyer of a payer swaption is buying a call option… The seller of a receiver swaption is selling a put option.

Is long a call the same as short a put?..

So, 1) only the buyers have the right to execute in each of the cases. 2) Only the sellers receive premium in each of the cases. 3) If the options are executed, the resulting cash flows are analogous for buying payer swaption and selling receiver swaption. Below I try to explain this

Payer swaption Buyer pays fixed, seller pays floating

Receiver swaption Buyer pays floating, seller pays fixed

If I am on the buying side of payer swaption, then I pay fixed, receive floating, if I am on the selling side of receiver swaption, then I again pay fixed, receive floating. So, they are the same in terms of cash flows from executed swaps only (without the premiums).

Correct me if I am wrong.

Except for the fact that they’re completely different.

They are the same in cash flow at the end result if exercised, but the end results will never happen similarly.

Assuming rates are increasing:

In the first situation, you would exercise if the rates are high, thereby you pay a low fixed and receive a high floating.

In the second situation, the counterparty would not exercise the swaption.

Assuming rates are decreasing:

In the first situation, you would not exercise the swaption.

In the second situation, the counterparty would exercise the swaption to receive a higher fixed and pay a lower float.

Haven’t even thought about that before.

Thank you, 125mph!

Ops…my bad…just realise it is an option, although the cash flow direction the same but the result will be different. 125mph explanation is the best!. thank you!