Lesson 14 of 25 · 7 min
The trigger as a price on Calder
The other four names already sit above the trigger, so Calder cannot produce the call by itself.
A common conversion of a trigger is 'the last sale on the concentrated name at which the test breaks, holding everything else flat.' On this sample that conversion does not produce a price. The other four rows are worth $6,032,795 − $1,840,005 = $4,192,790. The trigger is $2,655,090.67. For the book to equal the trigger with those four held flat, Calder would have to be worth $2,655,090.67 − $4,192,790 = −$1,537,699.33.
A negative market value is not a last sale. It is a signal that the arithmetic has left the domain of prices. Calder at zero leaves a book of $4,192,790, which is still $1,537,699.33 above the trigger, and an LTV of $1,858,563.47 ÷ $4,192,790 = 44.33 percent. The 70 percent market-value test is not reachable from this name alone. The other four already exceed the trigger before Calder contributes a dollar.
The implied Calder price is −$1,537,699.33 ÷ 3,100 = −$496.03, which is the same impossibility written per share. Track 7 spent a block on concentration as a property of a book. This is the complementary property: a 70 percent-of-market test on a book this large relative to the loan cannot be breached by wiping out one row, even the concentrated one. The conversion is still worth doing, because the sign of the result is the result.
When the implied last sale is negative, the call cannot be produced by that name. The arithmetic has returned an impossibility, and the impossibility is the lesson.
Key terms
- Single-name implied price
- The last sale on one row at which the book equals the trigger, holding every other row flat. Negative means the row cannot get you there.
- Residual book
- Market value of every row except the one being solved for. If the residual already exceeds the trigger, the implied price cannot be positive.
Worked example
Calder solved for the March trigger, others held flat
Trigger $2,655,090.67, Calder units 3,100, Calder March value $1,840,005, book $6,032,795.
- Residual book
- $4,192,790
- Calder value that meets the trigger
- −$1,537,699.33
- Implied last sale
- −$496.03
- Book if Calder is worth zero
- $4,192,790
- LTV if Calder is worth zero
- 44.33%
$6,032,795 − $1,840,005.
$2,655,090.67 − $4,192,790.
−$1,537,699.33 ÷ 3,100.
Still under 70%.
The implied Calder price is negative. On this statement a call cannot be produced by one name.
Check yourself
Holding the other four March rows flat, what Calder last sale makes the book equal the trigger of $2,655,090.67?
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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.