structured product?

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  1. #1

    structured product?

    anybody can explain what it below means?

    939 HK + 2628 HK Callable Accrual

    Underlying: 939 HK (China Construction Bank)
    2628 HK (China Life Insurance Co.)
    Call: 95%
    Strike: 85%
    Coupon: 20.00% p.a. (first coupon fixed)
    Tenor: 2 Years
    Frequency: Bi-monthly Call
    Currency: USD

    someone told me that this is structured product.
    this one looks like product with options.
    But I dunno how I read.

    A basket of two stocks. Purchase call option priced with strike ( 85% of spot price??? ) . Coupon seems interests. Call is....

    Please explain to me..

    Thanx


  2. #2

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    everyday the price of 939 and 2628 are observed.
    if either one of them fall below 85% of the price on the start date, you do not get any coupon accrual for that day. else u get a 20% coupon accrual.

    every 2 months there is a call observation. if the price of both 939 and 2628 are above 95% of original, the deposit is terminated and u get your money back plus the interest accrued.

    if at the end of 2 years the worst performer is below 85% of the initial price, u get the stock at the 85% price (i.e. not a capital protected product)


  3. #3

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    Quote Originally Posted by roll3432:

    A basket of two stocks.

    No, It is the "worse of" the 2 stocks

    Purchase call option priced with strike ( 85% of spot price??? ) .

    Actually selling put options with 85% strike


    Thanx
    There is no free lunch. Interesting coupon implies "interesting risk"

  4. #4

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    Quote Originally Posted by freeier:
    everyday the price of 939 and 2628 are observed.
    if either one of them fall below 85% of the price on the start date, you do not get any coupon accrual for that day. else u get a 20% coupon accrual.

    every 2 months there is a call observation. if the price of both 939 and 2628 are above 95% of original, the deposit is terminated and u get your money back plus the interest accrued.

    if at the end of 2 years the worst performer is below 85% of the initial price, u get the stock at the 85% price (i.e. not a capital protected product)

    so, in order to collect the "interesting" coupon, you have to hope that the prices of the underlying stocks fall more than 5% (and ideally not much more than that) but less than 15%?

    why would anyone want to buy this?

  5. #5

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    you want it to go up above 95%.
    since if you do that u'd get your 20%*2/12 = 3+ percent within just 2 months.

    for someone that thinks the two chinese shares are not going to go below 85% of the current price they can get a high yield return with the product.

    frankly, for such a worst of basket with a 2 years put, the risk is very high. the private bankers do these kind of structures as well but they tend to keep to within 6mths or max 1 years. i used ot issue alot for just 6 weeks.

    alot of traders take these kind of risk. i.e. selling options. the monetization of the risk premium is quite attractive if you do it over a long time. but retail tend to be one time investment/punting and in such cases i'd recommend ppl to do straight fund/equity invest more than this.


  6. #6

    wow, thanx guys. he kept pushing me to invest on this products. He also mentioned airbag thing..but I didn't understand it.


  7. #7

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    i suppose the airbag refers to the 85% strike level. so in case any of the 2 stocks really drop you get to buy the worst one at 85% current price.


  8. #8

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    roll3432, Just out of curiosity, which bank was this?


  9. #9

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    most banks sell such stuffs these days.