Price-Based Option

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Price-Based Option

An option contract giving the holder the right but not the obligation to buy (for a call) or sell (for a put) a debt security at a certain strike price. One chooses whether to exercise a price-based option based on the direction of the yield curve relative to the yield of the underlying debt security. Price-based options are relatively uncommon investments, having been largely supplanted by yield-based options, which are structured in a similar way.