dont do it I'm pretty sure they use averaging. they take each year at a certain point and divide by 5 to give you an average gain. And if the market explodes and you want to cash out they will kill you on your bid to get out. Your better off doing DCA (cost average) and forgetting about it. We sell them here, there are much better products to get into if you want some protection.
it's just an equity linked note. there's nothing special about it. there are dozens of them out there that offer 100% principal protection. all the major banks/brokerages like smith barney, jpmorgan, ml, deutsche offer them. you can simulate it by buying a cd or treasury then using the interest to buy calls on the index.
These indexed CD's are issued by Bankers Financial Services Corp. http://www.indexedcd.com/bankers/ The participating banks are here http://www.indexedcd.com/bankers/memberServices/participatingBanks.asp Each bank can determine a "participation rate", which is the percentage of the DJIA gain that they will pay out. Some will pay out 100% and others will pay less. If you look at the terms from one of these banks http://www.piscataqua.com/Dow Jones CD/dow_jones_cd_FAQ.htm it says how the Dow Jones return is calculated. THIS IS THE CATCH!!! They essentially pay the return of only the first 3.5 years of a 5 year CD! "Q: How is interest calculated for the Dow Jones CDs? A: Interest is calculated and credited at maturity by comparing the 12-quarter final average of the Dow Jones Industrial Average (DJIA) to the closing price of the DJIA on the issue date multiplied by the participation rate. Averaging reduces the risk of a single point in time decline in the market."