Discount improves returns for investors January 06, 2015 - 17:10
With just under two weeks to go before the
strike of the Cube FTSE Stoxx Booster Jan 2021 the price has dropped below
par allowing investors to buy the product at a discount and improving the
returns available to investors.
Cube is the only provider of publicly-available structured products, which enable investors to access real-time daily pricing.
Wholesale purchases of securities by institutions are of course done on the basis of real-time pricing. Cube brings the benefits of this professional practice to the retail buyer. This carries three main benefits for investors:
- When pricing conditions have
improved, as they have this time around, investors are able to benefit
immediately because the price will fall below 100%
- We don’t have to close product
early. If pricing conditions become tighter, the pre-strike price will
increase. This means that investors don’t risk making an application that is
- We are able to operate at a
tighter margin (because we don’t absorb the risk of fixing the terms), which
means that the terms of the product can be improved.
Since the terms for this product were set there have been some significant changes in the levels of the underlying market indices, their implied volatilities and interest rates. Indices have gone
down, rates are lower and volatility has increased. The net effect of this is
that pricing conditions have improved for Autocalls. This change is immediately
reflected in the offer price of the FTSE Stoxx Booster Jan 2021. Investors are able to buy the
product at less than 100%.
Six-year interest rates have dropped quite significantly over the last couple of months. The effect of this is to reduce the terms available on new products and to increase the price of the current FTSE Stoxx Booster Jan 2021 product. Meanwhile, the recent fall in the UK and European markets has caused volatility to increase. Higher volatility means that the terms offered by new products will generally improve and means that the price of the CUBE product has dropped. Currently, the effect of lower interest rates pushing prices up has been less than the effect of higher volatility (pushing prices down) and so we see the discount on the FTSE Stoxx Booster Jan 2021.
Additionally, the fall in the level of both the FTSE and
the Eurostoxx 50 indices means that investors will be buying into the product
at a more attractive level than was the case around the end of the year.
The bottom line here is that investors who buy the current Cube product are able to capture both lower index levels and better investment terms.
The product is available up to midday on Friday the 16 January, and strikes on the 17 January.
For the CUBE FTSE / Stoxx Booster Jan 2021 IPR analysis, please click here
David has been involved in equity derivatives, equity structuring and the structured product market for over 25 years. Before setting up CUBE in 2013 David worked at J.P. Morgan, Barclays and RBS. David has worked with and for retail product providers, discretionary managers and institutional investors.