I´ve seen people investing in Worst-Off Note on stocks for a long time. I´ve always told them to just sell a Put Down and In with samebarrier and keep the principal but it seems some people have money but are not willing to understand the product works. Its just about the "simplicity" of the investiment.
First of all, most of the juice in the worst-of revcon comes from the worst-of component, so a single asset down-and-in put will not be equivalent. Second of all, variation margin on an OTC product like this would be rather high, so you are not saving that much cash. Third of all, given how competitive the space is, when you buying a structured note, you are usually get a nice funding pickup. There are also tax considerations and many other things. PS. pure N-worst-of forward notes were very popular with PWM accounts for a while. if you can pick stocks, the structure makes a fair bit of sense when correlation is low and volatility is high
@sle: What broker do you use to trade these exotic? Do you use large banks as PB? I am exploring whether I could trade such products without PB for now.. Thanks.
I had a look at some products after starting this thread but wasn't overwhelmed, yet I'm really not familiar with worst off notes and most structured products actually, so a bit difficult to make sense of Sle's advice I was offered a couple of days ago in Hk saving plans (actually more like saving plans disguised as life insurance for regulatory purpose, or 101 to 103 life insurance plans as they seem to be called) Returns advertised are quite over the top over 10 years, I actually forgot the excell sheet but it's already over 5% by then and reaches 6.5% later on. Actually other plans offered by international insurance companies promise only slightly lower returns. Products look great for gift or inheritance purpose, and can be structured similary to a trust fund for the kids with yearly dividends later on, but those returns look dodgy, and of course they are not guaranteed. So far the returns fall well over 99% of the advertised returns (I didn't check the specific link and forgot it as well, but the banker mentionned 99.98 to 100%) but this is all post 2008. A huge stock market or real estate crash might turn into a panic like the one Chuck Krug described Just sharing here, I'm suspicious and haven't called to get the excell sheet with different plan's returns emailed. Anyone here invested in those plans went through a major market crash?
I had an account that consistently invested in SPX boosters from 2003 to 2009. It did quite well because I was long about 50% risk in the account earning effectively the SPX. And then when the crash happened, I was long 50% with a downside put (which actually helped). I forgot the overperformance, but I wanna say I outperformed a buy and hold SPX by like 30% over 5 years. I did have several taxable events but they were all at long term gains.
In my case, the min account was 100k and the min investment was 100k. However, for the typical client of that institution the min account was closer to a few million. And they would execute a structured note if they could get a few million of interest (across everyone they pitched it to).
Ironchef, below is an explanation about boosters - I sure needed it : http://www.catleylakeman.co.uk/factsheets/Explaining_a_Booster_To_My_Dad.pdf And thanks all again foryour input, interesting info, some of which I still need to digest. About saving plans/life insurance, anybody here use them ? And has used them across a big market crash ? Do the returns look realistic (I'll try to get the excell sheet on monday), and does it make sense to structure it similarly to a trust fund - where the policy holder and beneciaries have no say over the investment choices ?
Thank you luisHK. Looks like a very attractive deal for investors. Can I duplicate this on my own through owning the underlying, some combinations of options of the underlying and bonds?