For all those who had somehow escaped the ravage of CDO products, we thank GOD or our "Lucky Star". i managed to escape by keeping up reading news about these products. i found almost all the news not in favour of investing in this products. So i gave CDO a wide berth.
At first when i read the brochures of these CDO, i were of course attracted to the
capital guarantee parts.
(In fact most banks were stressing on this clause; smoke & mirror clause that layman found it hard to understand)
i found i don't completely understand this guarantee clause; so i did not buy.
i am sure many layman got trapped by this clause: "Capital guarantee what, there is nothing to worry"
So the moral of my story is that from CDO fiasco, i learn the English word "Guarantee" actually can have many meanings.
Under certain usage like in CDO brochures, "Guarantee means actually guarantee you have no guarantee at all due to all the attached conditions to the word guarantee.
So you see, i am now very, very careful whenever i come across the English word "guarantee".
i really learned now how to understand the word "Guarantee".
Have you?
Once again, we all thank GOD or our "Lucky Star".
(23-07-2012, 10:17 AM)d.o.g. Wrote: [ -> ]yeokiwi Wrote:Banks used to have many funny products...
Not sure whether they are stilling selling these..
Oh yes. Equity Linked Notes are EXTREMELY popular. Banks love to sell them since they are fee-based, no risk. And the customers love it because they think it's win-win, either they get an interest payment or they get the stock at a cheap price.
The reality, of course, is that all the customers are doing is writing a put option; they are SELLING INSURANCE. The "interest" is nothing more than the premium payment. In a bull market the option expires and the customers keep the money. When the stock tanks the put is executed and they are stuck with the stock. Heads they win a little, tails they lose a lot. In some ways it is similar to the Lehman mini-bonds, albeit the exposure is to a specific stock instead of a pool of loans. But ultimately, it's the same structure and thus a horrible product for buyers - but ignorance is bliss, is it not?
The ELN tenure is typically one month, if it goes for several months it is usually called an "accumulator" a.k.a "I kill you later". Accumulators were popular in the last great bull market, then the bear arrived and did a great deal of damage, so nobody is selling them for now.
And think about who is on the other side of the trade - they are BUYING insurance against the stock crashing. Who are they? Smart money like hedge funds, who buy the puts via their prime broker, which in turn coordinates with its private banking arm to sell off the exposure to the private banking customers as ELN-type "investments".
i almost persuaded by some "bankers" to invest in ELN but i found that if the contract is executed, the price of the stock is not attractive to me. So i don't buy any. i like to ask is it possible for the banks structure this "ELN" that the "strike price" of the stock is attractive to me. So far they can't or i come across one. In other words, is there a possible condition for the Bank's ELN's strike price to be attractive to me. If possible, i can wait.
(23-07-2012, 09:23 AM)yeokiwi Wrote: [ -> ]Banks used to have many funny products...
Not sure whether they are stilling selling these..
Quote:Product : Equity Linked Structure
If you have an interest in a particular stock but you are concerned about buying it at this time due to the price/situation/economics/etc,
We have come up with this product as an option for you:
(with the below CapitaLand example)
Spot Price : 4.220
Strike Price : 90% (3.798)
Interest : 10%p.a. = S$1,654.47 (Amount X Interest for period) (Guaranteed n Paid to you at maturity)
Lot holding : 53 (if strike)
Tenure : 1 month
Investment Amt : S$201,294.00 (No. of Shares X Agreed Strike Price)
In short, the current price is 4.220 but you need only to buy the stock at a lower strike price at maturity should the price fall below your strike level.
And you get paid an interest while waiting!
In other words:
Scenario 1 (based on details stated above)
Spot Price @ Maturity : 3.820
Interest Earned : 10%p.a. = S$1,654.47
Converted? : No Conversion, No Strike, No Purchase
Lot holding : 0
Remarks : You get back your principle + interest earned
Interest credited into your current account
Scenario 2 (based on details stated above)
Spot Price @ Maturity : 3.790
Interest Earned : 10%p.a. = S$1,654.47
Converted : Yes
Lot holding : 53
Remarks : You have purchased the stock at a lowered price and earned a 10%p.a. interest!
Interest credited into your current account.
QUESTION:
What happens after each case scenario?
ANSWER:
For scenario 01: you have not purchased any stuff thus you have the option to strike another stock of your interest. Should you still have interest in the same stock, you can choose to strike it again and earn the high interest.
For scenario 02: you have purchase 53 lots of CapitaLand stock at a lower price compared to the initial date. You have the option to hold on to the stock (as per your initial intentions) or you can do a reverse strike with the bank again.
Reverse Strike
Spot Price : 3.790
Strike Price : 110% (4.169)
Interest : 10% = S$1,650.99 (Mkt Value of stock X Interest for period) (Guaranteed n Paid to you at maturity)
Lot holding : 53
Tenure : 1 month
Additional Funds : NO
Scenario A
Spot Price @ Maturity : 4.200
Interest Earned : S$1,650.99
Converted : YES
Amount collected : S$220,957.00
Principle Growth : S$19,663.00
Total Yield from Initial : 11.41%
Scenario B
Spot Price @ Maturity : 4.150
Interested Earned : S$1,650.99
Converted : NO
Remarks : Did no reached target thus no change in holding but interest earned.
Strike again for another month!
Please see below:
Counter: CapitaLand (Bloomberg: CAPL SP)
Strike: 90%
Gross Yield: 10%
Min Size: SGD 200,000
Max Size: SGD 2,000,000
Dates as in daily T+14, 1 month pricesheet:
Trade Date: 19 Jul 06
Start Date: 2 Aug 06
Expiry Date: 31 Aug 06
Maturity Date: 1 Sep 06
Delivery Date: 5 Sep 06
No of days: 30
Of course they (Banks) do. Pow Chiat products for them what. (Reference to D.O.G.'s article above) In fact only not many months ago, some bankers still try to persuade me to buy ELN. Of course i told them the strike price of the stock was not attractive to me though the interest payment may be acceptable. Sometimes the interest payment is not attractive too for some ELN contract. Until now they have not asked me again. They may try some other "funny products" though. i have to be very discerning.