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Simple English definitions for legal terms
call equivalent position
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A quick definition of call equivalent position:
A call equivalent position is a type of investment that goes up in value when the underlying stock or asset increases in value. This can include owning a convertible security, buying a call option, or selling a put option. Essentially, it's a way to make money if the stock or asset you're investing in goes up in price.
A more thorough explanation:
A call equivalent position is a type of security position that increases in value as the value of the underlying equity increases. This type of position includes:
- Long convertible security
- Long call option
- Short put option
For example, let's say an investor holds a long call option on XYZ stock. If the price of XYZ stock increases, the value of the call option will also increase, resulting in a profit for the investor. This is because the call option gives the investor the right to buy the underlying stock at a predetermined price, which becomes more valuable as the stock price rises.
Similarly, if an investor holds a short put option on XYZ stock, they will profit if the stock price increases. This is because the put option gives the investor the right to sell the underlying stock at a predetermined price, which becomes less valuable as the stock price rises.
In summary, a call equivalent position is a type of security position that benefits from an increase in the value of the underlying equity.