Targeted Accrual Redemption Note - TARN
Darn...your TARN was terminated! But hey, that’s how they’re designed.
TARNs are Targeted Accrual Redemption Notes: a type of exotic (i.e. uncommon and fancy) derivative that terminates when coupon payments to the holder reach a predetermined threshold before the settlement date. Upon termination, the TARN holder gets the final payment, which is the par value...then the contract is over.
TARNs are good for savvy derivatives traders who like the idea of coupon payments following a pretty fast par value payout. They’re also all right options for forex investors. Yep, there’s FX TARNs for currency exchange.
Like most exotic derivatives, TARNs aren’t for everyone, because they come with their fair share of risk. If the TARN’s underlying security performs poorly, TARN holders can’t tap out. You’ll be stuck with an eroding short-term investment...eh. Not ideal.
And it’s hard to tell if this would happen, since it depends on the volatility of the underlying security. Don’t TARNish your short-term investments with TARNs...unless you’re willing to deal with the risk involved.
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Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]
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