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{{a|eqderiv|}}Variations on the unwieldy phrase “a diluting or concentrative effect on the theoretical value of the relevant Shares” | {{a|eqderiv|}}Variations on the unwieldy phrase “a diluting or concentrative effect on the theoretical value of the relevant Shares” appear seven times in the {{eqdefs}}, which is more than enough. The issue is this: you strike an equity swap at a given price, reflecting the prevailing capital value of the shares in question, but expressed by reference to a ''number'' of Shares: say, 1,000 Tesla shares. | ||
But remember this is a [[derivative contract]] — a special, sacred and non-Euclidean thing, floating free of the | It being a [[delta-one]] product off goes your [[swap dealer]], buys 1000 Tesla shares,<ref>Or there’s a [[give in]] or whatever.</ref> strikes your swap at that price, and we are in business. If the shares go up, so does your swap, and the [[swap dealer]] remains perfectly hedged. | ||
But remember this is a [[derivative contract]] — a special, sacred and non-Euclidean thing, floating free of the [[grotesque]] world of actual shares — and the one thing we know about derivative contracts is that therefore they do not link directly through to a hedge. They reference 1000 ''hypothetical'' Shares, so it does not matter whether your [[swap dealer]] actually holds shares as a hedge — I mean, it will, but it doesn’t have to — or mis-hedges: it still has to pay you the return on 1000 Tesla shares. | |||
As long as everything stays like that, all is fair in love and war. 100 Tesla shares represents a fixed portion of Tesla’s equity capital, and that is what you will get when your close out your positions. | As long as everything stays like that, all is fair in love and war. 100 Tesla shares represents a fixed portion of Tesla’s equity capital, and that is what you will get when your close out your positions. |