Doubling Option

The best way to understand a doubling option is to first understand a “sinking fund” provision. This requires the issuer to set aside a certain amount of money regularly for the purpose of redeeming its bonds.

A doubling option refers to the right of a bond issuer to double their “sinking fund” provision so they can redeem double the number of bonds.

See: Sinking Fund.

With the doubling option, if there are 100 bonds per sinking fund provision, the issuer can now redeem 200 bonds. And why would an issuer want to do this? In times of low interest rates, the issuer does not want to continue paying a higher interest rate to its investors, when they can redeem them before the bonds’ maturity date.