A put option allows the investor to return the bond, at a price of par, to the issuer prior to its stated maturity. Here, the investor owns the option. Investors will exercise this right when interest rates have risen, since they can reinvest the proceeds at higher available market yields. The put option thus limits price declines when rates rise, because the investor can redeem the bond at par on a specified date. When interest rates fall, however, the price of the security will rise like a bond without option features. Put.
