Asset swapped convertible option transaction (ASCOT)

Asset swapped convertible option transaction (ASCOT),

Definition of Asset swapped convertible option transaction (ASCOT):

  1. An asset swapped convertible option transaction (ASCOT) is a structured investment strategy in which an option on a convertible bond is used to separate a convertible bond into its two components: a fixed income piece and an equity piece. More specifically, the components being separated are the corporate bond with its regular coupon payments and the equity option that functions as a call option.

  2. The ASCOT structure allows an investor to gain exposure to the option within the convertible without taking on the credit risk represented by the bond part of the asset. It is also used by convertible arbitrage traders seeking to profit from apparent mis-pricings between these two components.

  3. A feature incorporated on a convertible bond that allows the investment to be divided into two parts - a bond and a stock.

How to use Asset swapped convertible option transaction (ASCOT) in a sentence?

  1. ASCOTs let investors remove the credit risk from convertibles and provides opportunities for convertible arbitrage strategies.
  2. An asset swapped convertible option transaction, or ASCOT, is a way to separate the fixed-income and equity components from a convertible bond.
  3. An ASCOT is constructed by selling an American call option on the stock of the convertible bond issuer at a strike price that accounts for the cost of unwinding the strategy.

Meaning of Asset swapped convertible option transaction (ASCOT) & Asset swapped convertible option transaction (ASCOT) Definition