Swaption (Swap Option)
The option to enter into an interest rate swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.
Investopedia Commentary
The agreement will specify whether the buyer of the swaption will be a fixed-rate receiver (like a call option on a bond) or a fixed-rate payer (like a put option on a bond).
Related Links
Options Basics Tutorial
Corporate Use of Derivatives for Hedging
See also: Commodity Swap, Currency Swap, Interest Rate Swap, Option, Swap, Total Return Swap
Also spelled: swaptions, swoptions