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LeoGlossary: Put Option (Bonds)
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Also known as a tender option.
A put option is essentially the opposite of a call provision, and allows the investor to require early repayment. When the put option is exercised, the issuer buys back the bond and pays the investor a previously specified price, often the bond’s par value. At that point, the issuer can remarket the bond to another investor.
Put options are generally exercised when interest rates rise and it is more profitable for the investor to buy similar bonds with higher yields.
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