With regards to a prepaid variable forward, any chance someone could help me walk through a simply example? I know the situation would be an investor with a concentrated long position, adds a collar to that, & take out a loan against the now risk-less long position. Entering a prepaid variable forward gets you cash today, but you agree to deliver shares in the future. I’m having trouble understanding how the market price at expiration plays a role in how many shares must be delivered & how this is used to benefit the investor with the concentrated position?
The delivery is based on the collar strikes. If it drops below the put, then you deliver all the shares that you agreed to at the put strike, and if it hits the call strike, then u know…
The text doesnt say much but that’s my assumption how it would work. If its inbetween the strikes, then you deliver X shares at the market price.
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