35 lines
2.5 KiB
Plaintext
35 lines
2.5 KiB
Plaintext
Gtpter 32: Structured Products
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MULTIPLE EXPIRATION DATES
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613
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In some cases, more than one expiration date is involved when the structured prod
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uct is issued. These products are very similar to the simple ones first discussed in this
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chapter. However, rather than maturing on a specific date, the final index value -
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which is used to determine the final cash value of the structured product - is the
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average of the underlying index price on two or three different dates.
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For example, one such listed product was issued in 1996 and used the S&P 500
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index ($SPX) as the underlying index. The strike price was the price of $SPX on the
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day of issuance, as usual. However, there were three maturity dates: one each in April
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2001, August 2002, and December 2003. The final index value used to determine the
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cash settlement value was specified as the average of the $SPX closings on the three
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maturity dates.
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In effect, this structured product was really the sum of three separate struc
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tured products, each maturing on a different date. Hence, the values of the imbed
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ded calls could each be calculated separately, using the methods presented earlier.
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Then those three values could be averaged to determine the overall value of the
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imbedded call in this structured product.
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OPTION STRATEGIES INVOLVING STRUCTURED PRODUCTS
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Since the structured products described previously are similar to well-known option
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strategies (long call, bull spread, etc.), it is possible to use listed options in conjunc
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tion with the structured products to produce other strategies. These strategies are
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actually quite simple and would follow the same lines as adjustment strategies dis
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cussed in the earlier chapters of this book.
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Example: Assume that an investor purchased 15,000 shares of a structured product
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some time ago. It is essentially a call option on the S&P 500 index ($SPX). The prod
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uct was issued at a price of 10, and that is the guarantee price as well. The striking
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price is 700, which is where $SPX was trading at the time. However, now $SPX is
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trading at 1,200, well above the striking price. The cash value of the product is:
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)ox (1,2001100) = 11.14
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Furthermore, assume that there are still two years remaining until maturity of
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the structured product, and the investor is getting a little nervous about the market.
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He is thinking of selling or hedging his holding in the structured product. However,
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the structured product itself is trading at 16.50, a discount of 64 cents from its theo- |