Lesson 18 of 25 · 6 min

Nineteen days of a falling path, daily

There is no positive Calder price that trips the market-value test while the other four rows stay put.

A path is a stress with a date on every print. Hold the other four rows at their March prices — $4,192,790 of market value — and walk Calder from $593.55 through nineteen sessions to a last print of $368.17. That last print is not a round number, and it is not 37 percent exactly. It is 37.97 percent below the March close.

Selected sessions, 3,100 shares, other rows flat at $4,192,790:

Session 4, a bounce: $562.15, Calder $1,742,665, book $5,935,455.
Session 7: $519.70, Calder $1,611,070, book $5,803,860.
Session 10, a second bounce: $503.60, Calder $1,561,160, book $5,753,950.
Session 13: $448.10, Calder $1,389,110, book $5,581,900.
Session 19: $368.17, Calder $1,141,327, book $5,334,117.

At the last print, market LTV is $1,858,563.47 ÷ $5,334,117 = 34.84 percent. Headroom is $5,334,117 − $2,655,090.67 = $2,679,026.33, or 50.22 percent of the book. Nineteen sessions of a falling name have not brought the facility near the line.

The trigger stated as a Calder price, other rows held flat, is the price that would take the book to $2,655,090.67. Calder would have to be worth $2,655,090.67 − $4,192,790 = −$1,537,699.33, which is −$496.03 a share. There is no such print. Calder going to zero still leaves $4,192,790 of market value, $1,537,699.33 above the trigger. A single-name path on this book cannot produce the 60 percent lesson's shortfall, because the other four rows are already larger than the trigger.

Key terms

Path: A sequence of dated prices on one or more rows, each day restated as its own stress, rather than a single end-point percentage.
Implied trigger price: The last price on a named row that would take the book exactly to the trigger, holding every other row flat.
Unreachable trigger: An implied trigger price below zero. The named row cannot fail the test by itself.

Worked example

Nineteen sessions, last print $368.17

Calder 3,100 shares. Other four rows held at $4,192,790. Trigger $2,655,090.67.

Session 0, March close: $593.55
Session 10: $503.60
Session 19: $368.17
Market LTV at the last print: 34.84%
Implied Calder trigger price: −$496.03
Book if Calder is zero: $4,192,790

A daily path makes the grind visible. It does not make an unreachable trigger reachable. The other four rows are already larger than the line.

Check yourself

The other four March rows are worth $4,192,790 and the trigger is $2,655,090.67. What Calder price trips the market-value test, and what is the book worth if Calder goes to zero?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.