The buyer of a bond put option stands to make a profit if changes in market interest rates cause the bond price to fall below the exercise price by enough to recoup the option premium paid.

Question

Quizplus · Accepted Answer

This is because the put option gives the buyer the right to sell the bond at a fixed exercise price, which becomes profitable if the market interest rates cause the bond price to decrease, as the put option holder can purchase the bond at a lower market price and immediately sell it at the higher exercise price.

The Buyer of a Bond Put Option Stands to Make