Swaption

A swaption is a financial contract that gives the holder the right, but not the obligation, to enter into an interest rate swap at a future date. Think of it as an insurance policy allowing a company or investor to lock in future interest rates, helping them manage the risk of rate fluctuations. If market rates move unfavorably, the holder can choose to exercise the swaption and benefit from the agreed-upon rate; if rates move favorably, they can choose not to. Swaptions are used for hedging or speculative strategies in managing interest rate exposure.