VWAP discount
A VWAP discount is the percentage below a volume-weighted average price at which an investor buys or converts into shares under a financing, such as 97% of VWAP or 80% of the lowest VWAP.
Last verifiedWhat VWAP is
The volume-weighted average price (VWAP) for a day is the total dollar value traded divided by the total shares traded. It weights each trade by its size, so it reflects where most of the day's volume actually changed hands better than the closing price does.
How the discount works
Financing agreements often set the price an investor pays as a percentage of VWAP. An equity line might price purchases at 97% of the daily VWAP; a variable-price conversion might use 80% of the lowest daily VWAP over the prior ten days. The discount is the investor's built-in margin, alongside any fees or commitment shares.
Two details change the economics a lot:
- Which VWAP. "The VWAP on the purchase date" and "the lowest VWAP over a lookback period" can give very different prices in a volatile stock.
- How deep the discount is. A 3% discount and a 30% discount are different deals even if the rest of the wording is identical.
Worked example
Hypothetical: Company X's daily VWAPs over five days were $2.10, $1.95, $2.05, $1.80 and $2.00.
| Formula | Price |
|---|---|
| 97% of the last day's VWAP | $1.94 |
| 90% of the average VWAP ($1.98) | $1.78 |
| 80% of the lowest VWAP ($1.80) | $1.44 |
All figures are hypothetical.
How to spot it
Search the agreement exhibit (filed with an 8-K or registration statement) for "Purchase Price", "Conversion Price" and "VWAP". The defined term "VWAP" itself usually names the data source used, such as a specific market data vendor. See Equity lines (ELOCs).
Guides that use this term
- Equity Line of Credit (ELOC) Financing ExplainedHow an equity line of credit (ELOC) works, and why share caps, volume limits, ownership blockers and falling prices keep proceeds far below the headline amount.
- Toxic Convertible Notes: How Variable Pricing WorksToxic convertible notes explained: how variable conversion prices, VWAP discounts and lookback windows work, and what happens to share counts with no floor.
- Finding the Lender and Deal Terms in SEC FilingsWhere a financing's terms and counterparty are disclosed, from 8-K Items 1.01 and 3.02 to the securities purchase agreement exhibit, with a phrase checklist.
- Prepaid Advance Agreements: How They Become SharesHow a prepaid advance agreement works: cash up front repaid in discounted shares, and how the discount, lookback, floor and triggers set the share count.
Related terms
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Definition from the Signal8 Academy glossary. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.