Reading 28 page 390

At the bottom it says: “Meanwhile … interest rates”. 1. Why would a long underlying plus put outperform. It will always underperform by the premium amount paid for the put. 2. If an investor thinks interest rate will go down , why no just buy the long bond only? see 1.

Haven’t read the passage you refer to but there are many reasons you might not want to just go long the bond if you expect rates to drop (your question #2) If you go long a bond, you need to know what part of the rate curve will drop and purchase a bond of that duration. Purchasing a bond ties up a lot more capital that purchasing a derivative product (ahhh, leverage). As well, a bond exposes you to more than just interest rates - you get exposure to creadit spreads, underlying company fundamentals (if corporate), supply and demand for a particular issue, political risk, and more…