Putable Bond

  

Categories: Derivatives

See: Put Option. See: Putable Common Stock.

"Ok, ok, I'll buy this 8% coupon bond from you for $1,200, giving me an adjusted return of more like 6.5%...but I reserve the right to put or sell back this bond to you for $1,100 any time in the next 18 months if I wanna. I'll lose $100, but presumably collect 3 interest payments of $40 along the way, or $120 total, so I make 20 bucks worst-case scenario."

Deal? Deal.

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finance a la shmoop. what is a call option? option? option, where are you? okay

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yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]

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is the right to call or buy a security. the concept is easy the math is hard.

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you think Coca Cola's poised for a breakout as they go into the new low

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calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]

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hundred and 20 days. so let's say Coke announces its new sugarless drink flavor

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zero it's two weeks later and the stock skyrockets to fifty eight dollars a

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share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]

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so you buy the stock and you're all in now for fifty five dollars plus one or

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fifty six bucks a share and your total value is now fifty eight bucks. well you

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could turn around today and sell the bundle that moment, and you'll have

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turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]

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options. as for Coke flavor zero turned out to be nothing more than canned water.

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