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CMFASPrepStudyingRES5
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Financial advisory
RES5Financial Advisory Services✓An ELN references a share with a strike of $10. At maturity the share closes at $8, below the strike, so the investor is settled in shares rather than cash. Setting aside the enhanced coupon, the per-share shortfall relative to the strike the investor bears is:
Because the share ($8) is below the strike ($10), the investor is delivered shares worth $2 less per share than the strike, mirroring the payoff of having written a put; the enhanced coupon only partly offsets this.
Assuming settlement in shares means no loss, or using the wrong reference price.
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