Buying a put option truncated the downside losses on the bond following interest rate rises to some maximum amount and scales down the upside profits by the cost of bond price risk insurance, leaving some positive upside profit potential.

Question

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A put option is a type of insurance that provides protection against downside losses by allowing the buyer to sell their bond at a predetermined price, mitigating the impact of interest rate rises. However, this insurance comes at a cost, which reduces the overall profit potential of the bond. As a result, the upside profits are scaled down, but some positive potential remains.

Buying a Put Option Truncated the Downside Losses on the Bond