What is a bond option?

A bond option is a contract with a bond as the underlying asset. Individuals can buy or sell some bond call or put options in the secondary market, though bond option derivatives are more limited than stock or other types of options contracts. Bond issuers also incorporate bond call or bond put options into bond contract provisions.

How are bond options different from stock options?

Bond options differ from stock options in their prevalence in secondary markets. Over-the-counter trading is common, with U.S. Treasury bonds being primary candidates. The intricacies of bond options are heightened by embedded options, which are included in bonds and can be exercised by the issuer or investor.

What are the different types of bond options?

Bond options come in two main types: call options, allowing the right to buy a bond at a predetermined price, and put options, granting the right to sell a bond at a specified price. How do bond options differ from stock options? Bond options are less commonly found on secondary markets compared to stock options.