An active fund trader seeks to capitalize on an expected steepening of the current upward-sloping yield curve using option-based fixed-income instruments.
Which of the following portfolio positioning strategies best positions her to gain if her interest rate view is realized?
A Sell a 30-year receiver swaption and a 2-year bond put option.
B Purchase a 30-year receiver swaption and a 2-year bond put option.
C Purchase a 30-year payer swaption and a 2-year bond call option.
I understand that as YC steepens upward, we want to receive float pay fixed. (first part of answer C)
I don’t understand why having a 2 year bond call option is valuable (with an upward sloping YC - increasing interest rates, don’t we expect S/T bond prices to drop so I wouldn’t exercise the call option?)