A full ratchet is an anti-dilution provision that applies the lowest selling price as the option’s adjusted price or conversion rate to existing shareholders.
It protects early investors by guaranteeing them compensation for any reduction in their property caused by future fundraising rounds.
Full ratchet can be costly for founders and could undermine capital raising efforts in future fundraising rounds.
Average weighted approaches are a popular alternative to the full ratchet.
A collar is an options strategy that involves buying a put option down and selling a put option up, which is used to protect against large losses but also cap large profits up.
The interest rate collector uses option contracts to hedge interest rate risk to protect floating rate borrowers from rate hikes or lenders from falling rates in the event of a reverse collar.
A long straddle is an option strategy that involves buying both a long call and a long put on the same underlying asset with the same expiration date and strike price.
The option-adjusted spread (OAS) measures the difference in yield between a bond with an embedded option, such as an MBS or callable, and the yield on a Treasury bond.