# Is “Issuer and Holder with same strike” meaningless?

I've seen a callable putable bond whose first exercise date is an exercise date both for the holder and the issuer. Moreover both strikes have the same value: 100.

I wonder what does it mean.

I guess this bond is doomed to be redeemed at the first exercise date. Thus it's payoff is deterministic.

I have the impression that those contracts where issuer and holder have options at the same dates with the same strike have been poorly designed.

Am I wrong?

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## 2 Answers

These are relatively common, especially in convertible bonds. You are correct that the effective maturity of the bond becomes the call/put date.

The reason for issuing them is fairly prosaic: a 10 year bond with a 3 year call/put date counts as a 10 year liability for accounting purposes, and of course a 3 year instrument for trading purposes. The latter can help make the issue attractive to investors.

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UBS launched a series of these around 1997-98. One needs to see the Offering Memorandum to see the full details and the reference trigger for the put and call. In the case of the UBS bonds (they were the ibanker, not the issuer), they issues 3/10 and 3/30 put-table and callable bonds. What they really were (and what these probably are): the bond buyer bought a 3 year bond with an embedded UST CMT option in it that is WAY overpriced. In the case of the UBS bonds, I don't recall the specifics of the underlying option tenor, but the implied vol on the embedded option was marked up about 100% from what a similar OTC option would have traded at. Under ALL circumstances it was a 3 year issue and the bond buyer also bought a way overpriced CMT option. Hope this helps.

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