Guaranteed funds with Market return

Discussion in 'Trading' started by Mvic, Oct 28, 2007.

  1. Mvic

    Mvic

    Apparently ING Spain has a product that is basically a CD that yeilds 7% TOTAL for 3 years and you get 40% of any Eurostock 50 rise in the 3 years. If the market take a spill you lose nothng and still get your 7% over the term.

    Do any US banks offer these types of products and if so what are they called?
     
  2. I believe they're called Structured Products...see Amex.com for details.
     
  3. Mvic

    Mvic

    Thanks, thats what they are. How can they guarantee initial investment plus interest AND allow you to participate in market upside?
     
  4. gkishot

    gkishot

    My guess is by investing 60% in bonds and 40% in broad indexes. Or something like that.
     
  5. BJL

    BJL

    Guaranteed payout is less than what market offers. Difference is invested in call options.

    This is something you can easily do yourself and get better terms.
     
  6. Mvic

    Mvic

  7. A 7% total return in 3 years is only about 2% a year if the market goes down and if it goes up then you're only getting 40% of the gains.
    Sounds like these products are basically insurance products and of course no insurance company would ever write a policy that it didn't make money off of.
    But you only need insurance if you're hedging against a huge loss. I guess one would be better off simply writing covered call options. Or you could eliminate market risk all together and just invest in a CD.
     
  8. gkishot

    gkishot

    Mvic, how much you get if stock market rises let's say 2%?
     
  9. Mvic

    Mvic

    Apparently still the 7% and 40% of the 2%. What you are losing is 3 years of compuonding CD rates vs chance to participate in market for very low risk. I agree with BJL though, better to put the cash in CDs and put on a debit Call spread on the QQQQs each month or something like that with better results.
     
  10. gkishot

    gkishot

    Assuming the average stock market return is 12% annually it amounts to the average return of 11.8% (7% + 0.4*12%) with much lower risk. I would take it.
     
    #10     Oct 28, 2007