Barrier reverse convertible
Definition · Level 12 · Exotics & structured
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A reverse convertible whose put is a down-and-in put: it only exists if the stock touches a barrier. The coupon is lower, but par is repaid unless the barrier is hit.
Example
6% coupon, barrier at 70% of the start: stock never touches it → 106, even if it ends below the strike.
Where Tradecraft teaches it
Level 12 · Exotics & structured, in the lesson “Reverse convertibles”: A note with a high coupon that hands you shares if the stock falls: a bond plus a short put.
Related terms
- Reverse convertibleNote paying a high coupon because the investor is short a put: below the strike at maturity they receive shares (or the equivalent loss) instead of…
- Asian optionAverage-price option: its payoff uses the average of the price on a set of dates, so it is less volatile and cheaper than the vanilla.
- Autocall barrierThe level, usually 100% of the starting level, at or above which the note is called on an observation date.
- AutocallableNote that repays early, at par plus a coupon, if the underlying is at or above the autocall barrier on an observation date.
- Barrier optionAn option that switches on (knock-in) or off (knock-out) if the underlying touches a set level before expiry.
- Basket optionOption on a weighted average of several assets: cheaper than the same call on one asset, and worth more as correlation rises.