What is a Deferred Payment Option?
A deferred payment option is an option contract for which the payment is deferred until, and paid not sooner than, the contract’s expiration date.
How Does a Deferred Payment Option Work?
A deferred payment option operates no differently from a standard vanilla option contract with the exception that payment, should the holder choose to exercise the option, will not be received until the expiration date. For instance, if a deferred payment option has an expiration date of 31 December and the holder chooses to exercise on 1 November, he will not receive the proceeds until 31 December.
Why Does a Deferred Payment Option Matter?
Though deferred payment options have a longer term to expiration and allow for greater leverage, holders must be aware that they will only be paid upon the contract's expiration date regardless of when they exercise the option.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
