Structured Products - Airbag

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Structured Products - Airbag

  1. 1. STRUCTURED PRODUCTS GUIDE MAKING A SENSE OUT OF IT
  2. 2. Airbag Airbag Certificates (Parachute Certificate, Cushion Certificate) A certificate that offers protection against downside losses to a pre- defined minimum level but allows an unlimited participation in upside movements of the underlying. 2
  3. 3. Participation Products Airbags is a sub-category of Participation Products. Participation products offer unlimited participation on the performance of the underlying. Many participation products offer conditional capital protection that deactivates when a certain barrier is reached during the lifetime of the product. The downside risk is often the same as a direct investment in the underlying. These products are suitable for an investor with a certain risk appetite. The market expectation may be either bullish or bearish. 3
  4. 4. Categories of Participation Products Tracker Certificates Airbag Bonus Certificates Certificates Participation Products Twin-Win Outperformance Certificates Certificates 4
  5. 5. Airbag Structure Profit Airbag certificates offer unlimited participation on an increasing underlying. They offer conditional capital protection and an 0 above-average return if the underlying trades sideways or slightly lower underlying Limited protection level Loss 5
  6. 6. Limited Protection “Airbag certificates” provide partial capital protection. Just like the real airbags, it will protect you quite effectively up to a point, but if the crash is a severe one, you can’t count on it! E.g., if the index ended up at 70% of the original index level, within the airbag range, an investor would get 100% of the issue price back. If it ended up at 60% of the original level, an investor would get 60% of the original issue price, because the index level is outside the airbag zone. 6
  7. 7. The beauty of Airbag The protection level of the Airbag doesn’t knock- out. It stays until the maturity of the product no matter. Above-average return if the underlying security trades sideways or slightly lower. 7
  8. 8. Conclusion • Airbag structures have their pro and cons. So understanding the risk of these products before investing will be the most important! Contact me at ngkaichong@yahoo.com 8

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