Puts/Calls on bonds represent, why, option, price

xiaotutu

Do the puts on calls and bonds represent an option on the yield rates or the price of a bond?
Is the call the option of the issuer and the put is an option for the holder?

So if yields rise the call option value rises, why though?

ogoluwa

Thanks Andy, that helped!

nitoha

Do the puts on calls and bonds represent an option on the yield rates or the price of a bond?
It represents an option on the price of the bond.

Is the call the option of the issuer and the put is an option for the holder?
Yes. The embedded call option gives the issuer the option to buy back the bonds at a particular price. The embedded put option gives the bond holder the option to sell back the bonds at a particular price.

So if yields rise the call option value rises, why though?
I am assuming you mean a stand alone call option, not an embedded call option on a bond.

A call option is basically a leveraged position on security. When interest rates rise investors would prefer to buy a call option instead of establishing a leveraged position since at higher rates, you would need to pay more interest on the leveraged position.