Strip Spreads
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Strip Spreads
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A strip or U.S. Treasury STRIPS is a bond that is chopped up into a number of interest payments and a single principal payment, each of which is then separately sold to investors. The strip bonds and zero-coupon bonds that are produced are valued by investors seeking a low-risk savings or income vehicle. In options trading, a strip is a strategy used to hedge the risk of a wrong bet on a decline in a stock's price.
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A bond is a fixed-income investment that represents a loan made by an investor to a borrower, ususally corporate or governmental.
Treasury STRIPS are bonds that are sold at a discount to face value and pay no interest. Investors receive the full face value when the bonds mature.
Coupon stripping bifurcates a bond's interest payments from its principal repayment obligation to create a pair of securities.
A zero-coupon convertible is a fixed income instrument that combines a zero-coupon bond and a convertible bond.
Certificates of Government Receipts (COUGRs) are one of several synthetic stripped Treasury securities.
Interest only (IO) strips are a financial product created by separating the interest and principal streams of a debt-backed security.
How to Calculate Yield to Maturity of a Zero-Coupon Bond
Advantages and Risks of Zero Coupon Treasury Bonds
What is the difference between a zero-coupon bond and a regular bond?
How Does an Investor Make Money On Bonds?
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James Chen, CMT is an expert trader, investment adviser, and global market strategist. He has authored books on technical analysis and foreign exchange trading published by John Wiley and Sons and served as a guest expert on CNBC, BloombergTV, Forbes, and Reuters among other financial media.
A strip is a bond coupon that has been removed from the bond so that the two parts can be sold separately, as an interest-paying coupon bond and as a zero-coupon bond. This process is handled by the brokerage or other financial institution that sells the products.
A strip is also referred to as a stripped bond or a z-bond .
In options, a strip is a strategy that involves being long in one call position and two put options, all with the same strike price, in order to alleviate the potential loss.
Most bonds come with the promise that interest will be paid to its owners in a series of payments, usually monthly, until the bonds reach maturity. The principal is then returned to the investor.
The interest payments are known as the coupon because they once were pieces of paper that the investor would take to the bank when a payment was due.
The strip process separates the interest from the bond itself. The bond becomes a zero-coupon bond to be sold separately at a discount to its face value. The buyer cashes it in for face value when it matures. The difference in price is the profit.
STRIPS is an acronym for Separate Trading of Registered Interest and Principal of Securities. A U.S. Treasury bond is stripped by the commercial book-entry system in a process that effectively makes the interest payment and principal payment separate entities. The result is known as a strip bond or a zero-coupon bond.
The U.S. Treasury issues Treasury notes that have semi-annual interest payments and mature in 10 years. The STRIPS process produces 21 separate debt securities, including 20 strip bonds and one zero-coupon bond.
The U.S. Treasury sells STRIPS that are transformed into interest payment products and zero-coupon bonds.
The minimum investment in a stripped fixed-principle note or Treasury security is $100. Any par amount above $100 has to be stripped in denominations of $100. These types of stripped bonds are attractive to investors saving save for retirement or seeking a fixed payment investment. The risk of these types of investment vehicles is extremely low.
An investor conducts a strip strategy by purchasing two put options and one call option on a single underlying stock.
The investor who adopts this strategy believes that the underlying price of the stock will plummet in the near-term future.
All three of the options will have the same expiration date and the same exercise price . If the investor is correct and the price drastically decreases, the puts will pay out substantially. If the investor is wrong and the price of the underlying asset increases, the call option will mitigate the loss.
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Created by Unknown User (e13161) , last modified by Confluence Admin on Oct 01, 2018
A different number of options on each strip does not impact the average price for each Option Strip (SA) or the average price calculation of the fair value price of the Option Strip Spread (GD).
CME Globex supports the average price method spread types Option Strips (SA) and Option Strip Spreads (GD) .
Options Strips (SA) consist of the simultaneous purchase or sale of a succession of contract expirations at the same strike with equal lengths of time between all leg expirations. Option Strip Spreads (GD) consist of multiple Option Strip (SA) (referred to as " sub-strips") legs. The legs can have a mixture of sides and strip lengths.
The average price method applies as described below:
User defined spreads failing to meet the criteria for classification by CME as SA (tag 762=SA) shall be classified as GN (tag 762=GN). A UDS defined as GN shall be priced by customers as any other GN spread and will not be priced as an average of the legs.
For additional information, see User-Defined Spread (UDS) .
For advanced information on UDS construction rules, see UDS - Validation and Messaging Rules .
The following examples illustrate how average pricing affects Option Strips and Option Strip Spreads in different scenarios.
The client system submits a Security Definition Request (tag 35-MsgType=c) message, creating an Option Strip (SA) user defined spread composed of the following:
Given the above, the customer will quote $.25 as the price of the spread (average of the components). This price must be within the Limits and Bands of the product.
Assuming a corresponding aggressing order matches the customer, CME Globex will match the trade and assign all legs of the spread a price of $.25. The customer's order price (if matched) will be used as the price of the spread and the price of each of the legs.
The client system submits a Security Definition Request (tag 35-MsgType=c) message for an instrument with the following existing Option Strips (SA) as spread legs, creating an Option Strip Spread (GD) user defined spread:
Buy Q1 Strip (Sub-Strip 1) with legs:
Sell Q2 Strip (Sub-Strip 2) with legs:
The average price for the 'sub-strips' is calculated to determine the difference between the trade price and fair value. The legs are then priced accordingly from the difference and any remainder is allocated.
The client system submits a Security Definition Request (tag 35-MsgType=c) message for an instrument with the following existing Option Strips (SA) as spread legs, creating an Option Strip Spread (GD) user defined spread:
Buy Winter (Sub-Strip 1) (SA) with legs :
Sell Summer (Sub-Strip 2) (SA) with legs :
The winter strip (buy) will have an average price of $0.60 and the summer strip (sell) will have an average price of $0.95 for a fair value price of -$0.35 ($0.60 - $0.95).
The client system submits a Security Definition Request (tag 35-MsgType=c) message for an instrument with the following existing Option Strips (SA) as spread legs, creating an Option Strip Spread (GD) user defined spread:
The call strip (buy) will have an average price of $0.55 and the put strip (buy) will have an average price of $0.70 for a fair value price of $1.25 (.55 + .70).
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Strep throat is an infection of the tonsils and/or throat caused by the bacteria streptococcus pyogenes (group A strep), and streptococcal bacteria are highly contagious. If you are infected with it, you may have the symptoms include sore throat, fever, and trouble swallowing. Children may also experience stomach pain, vomiting, and headache. Other signs include white dots on the tonsils, and/or redness in the throat.
Group A strep (GAS) throat is more commonly spread directly by sick people, person-to-person.
The bacteria can also be spread by contacting with people without any symptoms, but carry the strep bacteria on their skin or in their throat. However, people who have the strep bacteria and don’t have symptoms are less contagious. Antibiotic is useful for the infected person, and treatment for more than 24 hours usually prevents the spread of the strep bacteria to other people.
After knowing ‘how is strep throat spread?’ you should also learn the signs of getting infected.
Strep throat isn’t the worst infection you can develop, but you’ll definitely know the difference between a regular sore throat, and the strep version. Signs and symptoms of strep throat might include:
It's possible for people to have many of these signs and symptoms, and not have strep throat. These signs and symptoms could also be a viral infection or some other illness.
If you get strep throat, your physician will likely prescribe an oral antibiotic. Antibiotics can reduce the duration and severity of symptoms, avoid any complications, and lower the risk that the infection will spread to others. Usually 24 hours after treatment beginning, people taking an antibiotic will not have a fever, and feel well enough, can return to school or work, because they will no longer be contagious. However, stopping the medication early could lead to recurrences and serious complications, such as kidney inflammation or rheumatic fever.
To reduce fever and throat pain, try over-the-counter pain relievers from your local pharmacy such as ibuprofen or acetaminophen. Avoid using aspirin with children and teenagers because aspirin has been linked to Reye's syndrome, a rare but potentially life-threatening condition.
Try gargling with warm salt water to help reduce swelling and purchase some throat lozenges to relieve the discomfort and pain. Drink plenty of fluids, because fluids can help thin secretions and soothe an irritated throat.
Knowing ‘how is strep throat spread?’ is important, it is more vital to realize when to seek medical help as strep throat, though not very dangerous, could lead to more serious complications.
One of the complications is that strep bacteria may spread, causing infection in sinuses, tonsils, skin and blood. Moreover, strep infection may lead to inflammatory illnesses, including inflammation of the kidney (poststreptococcal glomerulonephritis); scarlet fever, a streptococcal infection characterized by a prominent rash; rheumatic fever, a serious inflammatory condition that can affect the heart, joints, nervous system and skin.
Call your health care provider if you or your children have any of these signs and symptoms:
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