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AdvancedStock Alerts + Tools0:46Fixed Income

Somebody Else Holds an Option

An embedded call lets the issuer repay early, which caps your upside exactly when falling rates would have paid you.

0:46 · 6 scenes

This lesson is part of a Stock Alerts + Tools plan.

What the lesson covers

  1. 0:00A callable bond means the issuer can hand your money back early.
  2. 0:05Who holds what. A call belongs to the issuer. A put belongs to you. The pricing reflects it.
  3. 0:14When a call gets exercised. Rates fall, the issuer refinances cheaply, and your high coupon disappears.
  4. 0:24Negative convexity. Price gains are capped near the call price while losses are not capped at all.
  5. 0:33The yield to quote. Yield to worst assumes the least favourable call date, which is the honest figure.
  6. 0:41Ask who holds the option, then use yield to worst.
Not in your planYou hold No active plan

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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Somebody Else Holds an Option — MAD Academy Training Video · MadStockAlerts