What is capped call option?
Capped options are a variation of vanilla call and put options. Capped options limit the amount of payout for the option holder, but also reduce the price the option buyer will pay. The primary benefit of this tool is managing volatility when it is low and likely to remain so.
Are convertible bonds call options?
A convertible bond essentially acts as a regular bond with an embedded call option on the company stock; where a call option is an agreement that gives the holder the right, but not the obligation, to convert into a financial instrument (normally the underlying equity) at a specified price within a specific period.
Is convertible debt an option?
Convertible bonds are a flexible financing option for companies. A convertible bond offers investors a type of hybrid security, which has features of a bond such as interest payments while also providing the opportunity of owning the stock.
Is convertible debt callable?
Many of the convertible bonds are also callable by the issuer on a set of pre-specified dates, which may lead to “forced conversion”. Consider a callable convertible bond where the issuer has the option to call the bond at par tomorrow.
What is a capped forward?
RMB Capped Forward For investor who wants to sell a currency, if the Fixing Rate is higher than the Reference Rate, investor will sell the currency at the pre-agreed Upper Forward Rate (better than Reference Rate). Otherwise, investor will sell the currency at Fixing Rate plus the Bonus Rate.
What is an option collar?
A collar is an options strategy that involves buying a downside put and selling an upside call that is implemented to protect against large losses, but that also limits large upside gains. The protective collar strategy involves two strategies known as a protective put and covered call.
How much is the premium on a call option?
At most, call sellers can receive the contract premium — $500 — but they have to be able to deliver the stock at the strike price if the stock is called by the buyer.
What is the difference between callable bonds and convertible bonds?
Callable bonds are bonds that can be redeemed by the issuer prior to maturity. Convertible bonds are debt instruments that can be converted into a predetermined number of equity shares during the life of the bond.
What is the valuation cap?
A valuation cap is a ceiling imposed on the price at which a SAFE will convert to stock ownership in the future. It is the maximum valuation at which an investor can convert a SAFE into equity: a pre-negotiated amount that serves to “cap” the conversion price once shares are issued.
Is Paying Off convertible debt good?
Convertible debt has obvious advantages in that it can allow you to get deals done faster. By giving your first investor(s) a good deal, you compensate them for taking a risk on your team by allowing them the option to take a future stake in your company at a discount, while protecting their downside risk.
What is a deferred call?
Deferred call. A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.
Can a bond be both callable and convertible?
Both convertible and callable bonds have an uncertain life span. In the case of callable bonds, the issuer may terminate the bonds before the stated expiration date, while the bondholder has the same right with convertible bonds. In both cases, a windfall profit is possible.