Chapters 5 through 12 dealt with structured financial products that are by and large designed to exploit certain market conditions or to modify the payoff patterns of more traditional stock and bond investments. Some structures, such as warrants and exotic options, are designed to speculate on market events. Others, such as various structured notes, convertible securities, swaps, and investment trusts, generally are used for some form of financial risk management or hedging activity. OTC private placements can be used to achieve speculative and risk management investment goals, and can be brought to market very quickly while appealing to the levels of investment of institutional and individual accredited investors.
Chapters 1315 deal with trading and capital-raising strategies for individuals holding restricted stock, low-cost-basis, or other concentrated equity positions, and corporations seeking to raise capital by using structured product strategies involving various new registration mechanisms and trading procedures that tend to fall naturally into the financial engineering arena. Chapter 13 provides an overview of trading strategies that are based on well-established option or swap structures. The monetization and hedging strategies for restricted stock and other concentrated equity positions constitute an exciting area of financial engineering that is as legally complex and difficult to maneuver as it is challenging from trading and hedging perspectives. It is of intense interest to those who have a significant portion of their net worths locked up in the common stock of a company they may have founded and later sold. Usually owners of unsalable securities have only two choices: sell under restricted conditions or hold. Holding often means risking one's assets to the stock market, where adverse price moves can wipe out one's life savings. Conversely, selling often translates into heavy tax payments and the loss of voting rights and dividend income.
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