A hedging strategy (part of risk-management strategies) that places a minimum and maximum sale price (similar to a collar) for the underlying (typically, a stock). If the underlying price at expiration turns out to be in the range formed by the minimum and maximum sale price, the underlying will be sold at its price at expiration of the sale contract. The settlement of a range forward sale contract is determined based on where relative level of the share price on the settlement date within the range defined in the contract.

For example, a range forward sale contract may entail that, at the end of a specific term (e.g., one year), the counterparty (buyer) and the issuer (seller) will trade, at a specific price, e.g., $30- a determinable number of shares of the issuer’s common stock, based on the average price observed over the last month in the contract term ending on the settlement date. Depending on the common stock price at the settlement date, as compared to the specific price (e.g., $35 vs. $30), and as per the following scenarios:

• If price at the settlement date is at or above $35, the counterparty will receive 0.85 shares of stock at the settlement date.
• If the price is at or below $30, the counterparty will receive 1.00 (one) share of stock at the settlement date.
• If the price, at the settlement date, lies between $30 and $35, the counterparty will receive a determinable number of shares of the issuer’s stock at a price of $30. For example, if the stock price is $32, the counterparty will receive 0.9375 ($30/ $32) shares of stock at the settlement date. If the stock price is $34, the counterparty will receive approximately 0.8823 ($30/ $34) shares on settlement.