Callable Security

Because the issuer can buy back the securities, the strike-price premium is meant to compensate the holder for some or all of this risk. Regulators usually require all transaction confirmations involving callable securities to disclose that the security is callable.

It is important to note that the prices of callable securities are affected by the price of the underlying security. For example, if a stock is callable at $100 and the shares are trading very close to that (say, at $99), the likelihood that the stock will be called soon is much higher than if the stock were trading at $89 (further away from the strike price .) As a result, because investors know that the issuer will probably call the shares if they trade above $100, the stock's price appreciation is effectively capped at $100 per share.