Key Take-Aways

  • The bond replacement investment structure we highlighted in an October 14, 2015 IOI Tear Sheet using a short put struck at $60 expired in-the-money (ITM).
  • Despite expiring ITM, Wal-Mart is presently trading at $60.43, implying a gain of around $2.78 on investment principal of $60 – a 4.8% period return or 30.8% on an annualized basis.
  • Investors in this structure have several choices of how to manage the position – roll, close, or gain upside exposure. This article offers a model of framing these choices in a portfolio context and discusses how to visualize ranges of exposure for bond replacement investment structures.

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