Premium Put Convertible

DEFINITION of 'Premium Put Convertible'

A convertible bond with an additional put feature that allows it to be redeemed at a premium sometime during its life. As with a put option, the issuer of the premium put convertible bond has an obligation to buy back the bond upon the discretion of the bondholder. Thus, the put option attached to this convertible bond allows it to be redeemed at a premium by the bondholder anytime before maturity.

BREAKING DOWN 'Premium Put Convertible'

The price of a regular convertible bond is highly dependent on the price of the underlying stock; as the stock price rises, the price of the convertible increases and as the stock price falls, the price of the convertible decreases. This relationship between the premium put convertible and the underlying stock may hold when the stock is rising, but it may be less apparent when the stock is falling, since the put provision provides a degree of downside protection for the premium put convertible.


In exchange for the right to "put" the premium put convertible to the issuer, the bondholder may have to settle for lower coupon payments from the bond. A premium put convertible will, therefore, generally have a lower coupon rate than a regular convertible bond.

RELATED TERMS
  1. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  2. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  3. Convertible Security

    An investment that can be changed into another form. The most ...
  4. Revertible

    Refers to a special kind of convertible corporate bond that automatically ...
  5. Convertible Arbitrage

    A trading strategy that typically involves taking a long strategy ...
  6. Deferred Equity

    A type of security, such as preferred shares or convertible bonds, ...
Related Articles
  1. Managing Wealth

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  2. Financial Advisor

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  3. Managing Wealth

    What You Should Know About Convertible Bonds

    As investors continue to seek yield in the current market, it's now a good time to bring up an often overlooked asset class—the convertible bond.
  4. ETFs & Mutual Funds

    Why Include Convertible Securities in Your Portfolio

    What are convertible securities and why you should include them in your portfolio.
  5. ETFs & Mutual Funds

    3 Best High-Yielding Convertible Bond ETFs (CWB, ICVT)

    Discover how convertible bond ETFs can offer investors growth and income while hedging fixed income portfolios in a rising rate environment.
  6. ETFs & Mutual Funds

    3 Best High-Yielding Convertible Bond Mutual Funds (LACFX, FACVX)

    Discover an often overlooked asset class and how your portfolio can benefit from it, and learn about three of the highest-yielding options available.
  7. Managing Wealth

    The Top 6 Convertible Bond Funds for 2016

    Take a look at convertible bond mutual funds that are well-positioned heading into 2016, and why investors might consider a convertible fund portfolio.
  8. Managing Wealth

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  9. ETFs & Mutual Funds

    Leverage Your Returns With A Convertible Hedge

    Find out how you can maintain your income stream by using this type of bond strategy.
  10. ETFs & Mutual Funds

    The Top 3 Convertible Bond ETFs for 2016 (CWB, ICVT)

    Obtain detailed information on the exchange-traded funds (ETFs) available for traders seeking ETF exposure to convertible bond investments.
RELATED FAQS
  1. How do I use a premium put convertible?

    Holders of convertible bonds face all the pitfalls that traditional bondholders face - liquidity risk, interest rate risk ... Read Answer >>
  2. 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 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 Answer >>
  4. 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 Answer >>
  5. What is a 'busted' convertible bond?

    Learn about busted convertible bonds; these are hybrid securities with conversion prices significantly higher than the market ... Read Answer >>
  6. What are 'death spiral' convertible bonds?

    Conventional convertible bonds give the bondholder the right to exchange the bond for a certain amount of the issuer's common ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center