Cl,opter 32: Structured Products 637 
:don. The PERCS is equivalent to a covered write of a long-term call option, which is 
imbedded in the PERCS value. Although there are not many PERCS trading at the 
current time, that number may grow substantially in the future. 
Any strategies that pertain to covered call writing will pertain to PER CS as well. 
Conventional listed options can be used to protect the PERCS from downside risk, 
to remove the limited upside profit potential, or to effectively change the price at 
which the PERCS is redeemable. Ratio writes can be constructed by selling a listed 
call. Shorting PERCS creates a security that is similar to a long put, which might be 
quite expensive if there is a significant amount of time remaining until maturity of 
the PERCS. 
Neutral traders and hedgers should be aware that a PERCS has a delta of its 
own, which is equal to one minus the delta of the imbedded call option. Thus, hedg­
ing PERCS with common stock requires one to calculate the PERCS delta. 
Finally, the implied value of the call option that is imbedded with the PERCS 
can be calculated quite easily. That information is used to determine whether the 
PERCS is fairly priced or not. The serious outright buyer as well as the option strate­
gist should make this calculation, since a PERCS is a security that is option-related. 
Either of these investors needs to know if he is making an attractive investment, and 
calculating the valuation of the imbedded call is the only way to do so. 
OTHER STRUCTURED PRODUCTS 
EXCHANGE-TRADED FUNDS 
Other listed products exist that are simpler in nature than those already discussed, 
but that the exchanges sometimes refer to as structured products. They often take 
the form of unit trusts and mutual funds. The general term for these products is 
Exchange-Traded Funds (ETFs). In a unit trust, an underwriter (Merrill Lynch, for 
example) packages together 10 to 12 stocks that have similar characteristics; perhaps 
they are in the same industry group or sector. The underwriter forms a unit trust with 
these stocks. That is, the shares are held in trust and the resulting entity - the unit 
trust - can actually be traded as shares of its own. The units are listed on an exchange 
and trade just like stocks. 
Example: One of the better-known and popular unit trusts is called the Standard & 
Poor's Depository Receipt{SPDR). It is a unit trust that exactly matches the S&P 500 
index, divided by 10. Th&-SPDR unit trust is affectionately called Spiders (or 
Spyders). It trades on the AMEX under the symbol SPY. If the S&P 500 index itself 
is at 1,400, for example, then SPY will be trading near 140. Unit trusts are very active, 
mostly because they allow any investor to buy an index fund, and to move in and out 
of it at will. The bid-asked spread differential is very tight, due to the liquidity of the