The losses on a purchased put option position when rates fall are limited to the option premium paid.

Question

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When rates fall, the value of the underlying asset (such as a stock or bond) may actually increase, which reduces the value of the put option. However, the maximum loss on a purchased put option position is limited to the premium paid for the option, which is the most the buyer can lose if the option expires out of the money.

The Losses on a Purchased Put Option Position When Rates