CONVERTIBLE SECURITIES AND DERIVATIVES (Types of Warrant (Covered…
CONVERTIBLE SECURITIES AND DERIVATIVES
An investment that can be changed into another form.
A derivative contract through which two parties exchange financial instruments.
A derivative that confers the right, but not the obligation, to buy or sell a security – normally an equity – at a certain price before expiration.
Types of Convertible Securities
A type of debt security that can be converted into a predetermined amount of the underlying company's equity at certain times during the bond's life, usually at the discretion of the bondholder.
Convertible Preferred Stock
Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually any time after a predetermined date.
Types of Warrant
Issued by financial institutions rather than companies, so no new stock is issued when covered warrants are exercised.
Wedded or wedding warrants
Not detachable, and the investor must surrender the bond or preferred stock the warrant is "wedded" to in order to exercise.
Issued in conjunction with bonds, which in turn are called warrant-linked bonds, as a kind of sweetener that allows the issuer to offer a lower coupon rate.
An agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike price, prior to the expiration date.
An agreement between two parties for the sale of an asset at an agreed upon price.
A customized contract between two parties to buy or sell an asset at a specified price on a future date.