CatEputs (short for Catastrophe Equity Put Option) are derivative contracts that give the insured the right to sell new shares at a fixed price, which the investor promises to buy in the event of a catastrophe.
In years past pre-2008 years many new franchisees funded their first restaurant or store with home equity, an option that underwater home values has made impossible for most homeowners.
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The new investors may buy convertible preferred securities, that is, bond-like equity with an option to change to a set number of common shares at an established price and at an exercise date in the future.
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Mr. Neithercut said that if Lehman exercises its option to buy the 26.5% stake, Equity Residenital would have the option to buy the final 26.5% stake that they own.
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The theory views equity as a call option on a firm's assets.
The third planned actively managed ETF will be an all equity portfolio strategy that employs option hedging techniques.
Partners could even have the option to purchase equity in the league.
Aside from the actual dividends from the individual stocks, ECV also writes call options on equity indexes to generate gains from option premiums.
Typically convertible preferred is attractive from a corporate standpoint because it tends to carry very low interest rates (in exchange for having equity-like upside from the option to convert into common stock).
This option is similar to a home equity loan, but with one key difference: Interest on home equity lines of credit (Helocs) are variable.
For that reason, financial advisers continue to advise borrowers to exhaust every other option a home-equity line of credit, a loan from a family member or a high-interest credit card before pawning anything.
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While we had the option to try to raise debt or equity capital, we knew debt capital was incredibly difficult to raise in the current economic environment.
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Our decision not to pursue that option was well understood and supported by leading equity analysts.
On Feb. 28, Citigroup stepped in to shore up struggling lender Ameriquest, taking an equity stake and also arranging a credit line and getting the option to buy some of its business lines.
They also have the option of making other bets in distressed debt, equity and so forth with 30% of the fund.
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Due to various agreements, Fiat must achieve certain milestones before expanding its ownership in the company, such as producing a 40-mile-per-gallon vehicle off a Fiat platform in the U.S. This would grant the Italian automaker an option to acquire an additional 5%, taking its total equity stake to 57% later this year.
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Another option might be to use prices in the secondary market for private-equity stakes and portfolios.
Therefore, a couple of option-buying strategies to consider would be straddles and pair trades on equity options in the small- and mid-cap space, which puts you in a position to profit from either upside or downside in the market over the next several weeks.
Such a public step would probably give the government no option but to force some executives to resign and to wipe out shareholders' equity in return for the fresh capital.
But the option fell out of favor as other, simpler forms of fund raising--including tapping the public equity market--grew more popular.
With the strike price of the option set a long way above prevailing levels, they will have reckoned they could convert the debt into equity at ever giddier prices.
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