With this sort of contract, the owner of a big, highly appreciated stock position gets an upfront payment from an investment firm--typically for 75% to 85% of the value of his shares--in exchange for agreeing to deliver a variable number of shares or cash in the future, with the exact amount dependent on how the stock performs.
That is because there is no natural income flow, unlike with bonds, in which investors receive a regular interest payment, said Thomas Kressin, who heads currency strategy for Pacific Investment Management Co. from Munich.