Options can either increase or decrease a security’s potential for price changes, depending upon the type of option and who owns it. A call option allows the issuer of the security to redeem the full amount of the obligation before its maturity date. Investors have sold, or are “short,” the option on a callable bond. In return for allowing the issuer to call a bond prior to maturity, investors receive a higher yield. It is helpful to consider securities with call options in two groups: amortizing and non-amortizing or “bullet” securities. An amortizing.
