A put option which is embedded in a premium put convertible, giving the bondholder the right to demand redemption of the bond at a premium to par value prior to maturity date. The strike price of the put option is at a premium to par (i.e., the bond is generally issued with a lower coupon than a vanilla convertible). This bond can be converted on only one date during its life, in which case the exercised option is no longer effective. The addition of puttability in a convertible is viewed as an extra attraction for investors, as this will help offer downside price protection.

This option provides a higher guaranteed return to the bondholder than would be received on identical bond without such a put. The holder’s decision as to whether to exercise the put option will depend the relative values of the stocks to which he would have the right to convert and the cash receivable including the premium on exercise of the option.