Preference Equity Redemption Cumulative Stock - PERCS


DEFINITION of 'Preference Equity Redemption Cumulative Stock - PERCS'

A convertible preferred stock with an enhanced dividend that is limited in term and participation. Preference equity redemption cumulative stock (PERCS) shares can be converted for shares of common stock in the underlying company at maturity. If the underlying common shares are trading below the PERCS strike price, they will be exchanged at a rate of 1:1; but if the underlying commons are trading above the PERCS strike price, common shares are exchanged only up to the value of the strike price.

BREAKING DOWN 'Preference Equity Redemption Cumulative Stock - PERCS'

PERCS are essentially a covered call option structure, and are popular in an environment of declining yields because of the enhanced dividend. Upside profits are limited in order to produce a higher yield.

For example, if you own 10 PERCS with a strike price of $50, at maturity the following could happen:

-If, at maturity, the underlying asset was trading at $40, you would receive a total of 10 common shares, worth $40 each.

-If, at maturity, the underlying asset had doubled and was trading at $100, you would receive only five shares worth $100 each. The total value of the shares ($500) exchanged equals the strike price of $50 x 10 shares.

  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Covered Call

    An options strategy whereby an investor holds a long position ...
  4. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Yield

    The income return on an investment. This refers to the interest ...
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  3. Options & Futures

    Cut Down Option Risk With Covered Calls

    A good place to start with options is writing these contracts against shares you already own.
  4. Options & Futures

    An Alternative Covered Call: Adding A Leg

    Try this approach to covered calls to increase your potential for profit in any market.
  5. Options & Futures

    The Basics Of Covered Calls

    Learn how this simple options contract can work for you, even when your stock isn't.
  6. Options & Futures

    An Alternative Covered Call Options Trading Strategy

    This different approach to the covered-call write offers less risk and greater potential profit.
  7. Options & Futures

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  8. Options & Futures

    Using LEAPS In A Covered Call Write

    Discover how strategy can help reduce your downside risk.
  9. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. What is dilutive stock?

    Dilutive stock is any security that dilutes the ownership percentage of current shareholders - that is, any security that ... Read Full Answer >>
  2. What are ComputerShare's escheatment services?

    Escheatment is the process by which ownership of abandoned property is transferred to the state. Escheated property can include ... Read Full Answer >>
  3. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  4. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center