Asset Swapped Convertible Option Transaction - ASCOT


DEFINITION of 'Asset Swapped Convertible Option Transaction - ASCOT'

An option on a convertible bond that is used to separate a convertible bond into its two components: 1) a bond and 2) an option to acquire stock. When the bond is stripped of its conversion feature, the holder has a bond featuring fairly stable returns on debt, and a volatile - but potentially very valuable - option.

BREAKING DOWN 'Asset Swapped Convertible Option Transaction - ASCOT'

Increasingly, ASCOTs are being bought and sold by hedge funds employing convertible arbitrage strategies to increase their portfolios' leverage. Often, the bond component is broken down into small denomination bonds and sold to individual investors, while the option component is retained if the investor anticipates share price appreciation.

  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  3. Appreciation

    An increase in the value of an asset over time. The increase ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  6. Option

    A financial derivative that represents a contract sold by one ...
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  1. What is the difference between convertible and reverse convertible bonds?

    The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While ... Read Full Answer >>
  2. What is a convertible bond?

    A convertible bond is a bond issued by a corporation that, unlike a regular bond, gives the bondholder the option to trade ... Read Full Answer >>
  3. Where does the stock come from when convertible bonds are converted to stock?

    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Full Answer >>
  4. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  5. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  6. What do hedge fund analysts do?

    A hedge fund analyst primarily provides support to a portfolio manager on how to best structure the hedge fund's investment ... Read Full Answer >>

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