Core concepts
PT, the price side
One PT redeems for one stock token on its maturity date. It gives up the dividends in between, and that is exactly what makes it cheap.
Because PT surrenders every dividend before maturity, it trades below the token price, and that discount is the buyer’s return. Hold it to the date and the outcome was fixed at the moment of purchase, whatever the dividends went on to do.
- Redeems for
- One stock token, at maturity
- Trades at
- A discount to the token price
- The discount is
- The fixed return, if held
- Gives up
- All dividends before maturity
It is a rate trade, not a stock call#
The stock exposure in PT is the same as holding the token, so a PT buyer is not expressing a view on the company. They are buying a discount that annualises to a known percentage — which is the same shape of trade as buying a bond below par and holding it to redemption.
Before maturity it moves#
PT trades freely the whole time, and its price responds to the underlying stock, to the time remaining, and to how much demand there is for fixed return. Selling early realises the market price at that moment — not the settlement value.
Convergence is mechanical; the path is not#
As the clock runs down, PT’s discount decays toward zero and its price converges on the token’s. That much is arithmetic. What is not arithmetic is how it gets there: a rush of demand for fixed return can push PT rich early, and a rush for yield elsewhere can cheapen it — which is, of course, precisely when its fixed return looks most attractive.
A worked figure#
Taking Pfizer at $25.40 against the 17 Dec 2027 maturity:
| Value | |
|---|---|
| Token price | $25.40 |
| YT prices at | $2.15 |
| PT is the remainder | $23.25 |
| Discount to the token | $2.15 |
| Annualised fixed return | 7.10% |