synthetically adding/removing calls from call/noncall debt

joehogue

uhhhhhh....anyone else skipping over this? If not can you explain to me like I am a fourth grader

Unforseen

goodman2011 Wrote:
-------------------------------------------------------
> the question is about a debt , I think as a
> investor ,you need not consider this

. I'm totally...idot..thinking in opposite.

The callable bond issuer holds the "call". To remove the call, sell it -- receiver swaption.

jmh530

deriv108 Wrote:
-------------------------------------------------------
> skip, thanks for clarification...I thought I
> understood month ago, but actually didn't.
>
> The buyer of a callable bond is like implementing
> a covered call on the bond.
>
> Just buy a call to remove it.
>
> ...easy-peasy...

Can't recall above...never say it again, in AF.

justin88

deriv108 Wrote:
-------------------------------------------------------
> goodman2011 Wrote:
> --------------------------------------------------
> -----
> > the question is about a debt , I think as a
> > investor ,you need not consider this
>
> . I'm totally...idot..thinking in opposite.
>
> The callable bond issuer holds the "call". To
> remove the call, sell it -- receiver swaption.


Deriv...I think you're confusing yourself....If you are buying a callable bond, you are correct, the issuer holds the call. This is A BAD THING for the investor (except for the higher promised yield of course). As the investor, you would want to BUY a call, not sell a call. You already implicitly sold a call when you bought the bond from the issuer.

Edit:
I take that back...in the case where you're an issuer and you wanted to remove your call option for some reason (in order to pay a lower yield) you're right, the issuer would sell a call.



Edited 1 time(s). Last edit at Sunday, May 15, 2011 at 08:19PM by abushey31.

ll11

goodman2011 Wrote:
-------------------------------------------------------
> if add , buy reciever swaption
> if remove ,sell

I bet you are the bond issuer.



Edited 1 time(s). Last edit at Sunday, May 15, 2011 at 07:33PM by deriv108.

lcai

yup and easy...


Brooks was here


Get busy living...or get busy dying


Deriv108, you totally edited and removed your "easy peasy" comment which led directly into my quote continuing a Shawshank Redemption reference. now I just look like an eccentric candidate.



Edited 1 time(s). Last edit at Sunday, May 15, 2011 at 07:38PM by SkipE99.

strikethree

skip, thanks for clarification...I thought I understood month ago, but actually didn't.

The buyer of a callable bond is like implementing a covered call on the bond.

Just buy a call [receiver swaption] to remove it.

...easy-peasy...

Zestt

Thanks.

...one second, to remove a call from callable bond:

the bond ISSUER will sell receiver swaption, but
the bond HOLDER will buy receiver swaption.

Am I right?



Edited 1 time(s). Last edit at Sunday, May 15, 2011 at 07:18PM by deriv108.

pennyless

a receiver swaption = call option

if you have a callable bond and you want to remove the call, you want to remove the call option and thus "remove" the receiver swaption. or sell it. so to remove the call you sell the receiver option

if you have a noncallable bond and want to add a synthetic call, you buy the receiver option.

it was not specifically mentioned in the LOS so there is no way they can ask us to calculate this shiz unless they wanna tick me off. i imagine if you memorize this concept you should be able to get the 3 choice mc question down. hopefully lol

cityboy

or what paraguay said..man that guy....dont go blowing the curve paraguay