Introduction
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Worst of Barrier Reverse Convertible
Your Market Expectations
You anticipate a moderate increase or sideways trend of the respective Underlyings until the Final Fixing Date, and expect none of them to drop to or below a certain level throughout the lifetime of the Product. You wish to achieve attractive yields in the form of coupon payments by investing in a structured product, whilst also enjoying protection against price losses to a certain Barrier Level.
Our Proposal
By investing in a Worst of Barrier Reverse Convertible, you can enjoy a Coupon Rate which is significantly above the risk-free interest rate, whilst also being protected against price losses down to the Barrier Level.
Description
The Worst of Barrier Reverse Convertible offers the Investor a Coupon Amount at the respective Coupon Payment Dates regardless of the performance of the Underlyings during lifetime combined with a conditional downside protection. If a Barrier Level has been reached or surpassed (continuous observation) but all Underlyings close above their Initial Fixing Level at the Final Fixing Date the Investor will still receive the Denomination at the Redemption Date. Otherwise the Investor will receive at the Redemption Date a predefined number (i.e. Conversion Ratio) of Underlyings with the Worst Performance. Any potential fractional entitlements per Denomination will be paid in cash, based on the Final Fixing Level.
Component 1
The investor buys a bond. This component increases in value if interest rates fall, and decreases in value if interest rates rise.
Component 2
The investor is short a Worst of Down-and-In Put-Option on the three Underlyings. If none of the Underlyings ever touch the barrier, the Option expires worthless. Otherwise the Investor will be short a Put Option on the Underlyer with the Worst Performance between and including the Initial Fixing- and Final Fixing Dates. This means the product provider has the right to deliver a predefined number (i.e. Conversion Ratio) of Underlying with the Worst Performance between the Initial Fixing Level and the Final Fixing Level. This delivery replaces the repayment of the Denomination at the Redemption Date. The value of the Down-and-In Put increases as the fluctuations of the Underlyings (volatility) increase. The strike of the Put-Option is set at the official close of the Underlying on the Initial Fixing Date (“at-the-money”), whilst the Barrier is a predefined percentage thereof which lies below it. If the official close of the Underlying is above the strike of the Put-Option on the Final Fixing Date, the Put Option will expire worthless, given the option ever existed due to a Barrier Event. If the offi cial close of the Underlying on the Final Fixing Date (Final Fixing Level) is below the strike of the Put-Option the Investor will owe the Issuer for this Product component an amount equal to the negative performance between the Initial Fixing Date and the Final Fixing Date multiplied with the Denomination. This amount never exceeds the value of the bond (Component 1) and is offset by its value.
Opportunities and Risks of Worst of Barrier Reverse Convertible
Opportunities
- An attractive yield opportunity in sideways-trending or moderately falling prices of the Underlyings.
- Conditional capital protection. As long as the Barrier Level is not touched or surpassed the investor will receive the Denomination paid out in cash even if one or more of the Underlyings close below the Initial Fixing Level on the Final Fixing Date.
- The Coupon Rate will be paid out in any case.
- Liquid secondary market on the SWX Swiss Exchange
Risk
- In the case of physical delivery of an Underlying the investor may suffer a loss equivalent to that he would have taken had he made a direct investment in the Underlying with the Worst Performance between the Initial Fixing Date and the Final Fixing Date.
- The maximum yield is limited to the Coupon Rate.
- The investor surrenders income such as dividends in favour of the strategy, but receives the Coupon Payments.
- Depending on the investor’s depository bank, transaction fees may be levied for the delivery of the shares to the investor´s deposit.
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