Crude oil has been trading range-bound for almost a year now, oscillating in a rough range between 100 and 120 $/bbl (Br… Readmore…
Single Products and Markets
Weblog about specific products and market opportunities
Bonus Certificate on Brent Crude Oil
January 9th, 2012 by Andreas BlümkeCrude oil has been trading range-bound for almost a year now, oscillating in a rough range between 100 and 120 $/bbl (Brent Crude front-month future, currently trading at 112 $/bbl). Despite that fact, volatility has been sticking to the mid 30s, as uncertainties pull the commodity one day up and the next one down. Hedge-funds have been whipsawed in this trend-less yet volatile environment. The forward curve is in backwardation, meaning that prices for earlier deliveries are higher than prices for later deliveries.
This constellation calls for a both conservative and high-potential investment solution: a deep barrier Bonus Certificate. Below is an example: Read the rest of this entry »
How to protect yourself from inflation
December 18th, 2011 by Andreas BlümkeCentral banks from all around the world have been printing money like there was no tomorrow for some time now. Whether it is for so-called quantitative easing, stimulating the economy or depreciating its currency to protect its exporters (in particular the USA and Switzerland), these institutions are inflating their balance sheets in exactly the opposite way they are telling the banks to reduce theirs.
Hence, the specter of inflation has returned to the mind of many an investor. Inflation adjusted yields in the USA are already strongly negative. The latest US Consumer Price Index (an index to measure inflation) was already at +3.4% year-to-year. Yet the one-year swap rate hovers around 1%, so the effective interest rate you get on your money is at -2.5%! Do that for ten years and you will lose over 20% of your purchasing power. It’s not as bad in Europe, but with the sovereign crisis dragging on and on, it’s difficult to forecast anything on the old continent. Many investors would rather be protected against inflation, even if it ends up never showing up. Read the rest of this entry »
Currency and market swings II
September 11th, 2011 by Andreas BlümkeThe Swiss National Bank has pegged the CHF against the EUR at a level of 1.20 and my previous blog (dated 8th of August) came back to haunt me. Here’s why: after working on the product described in it, I fine-tuned it into a 2-year maturity term-sheet and launched a marketing campaign. With the mass-mailing system I had helped create and with the help of our client relationship managers, we sent out over a thousand letters to clients of the bank who would potentially be interested in a product with these features:
- Currency: CHF
- Capital guarantee: 95%
- Maturity: 2 years
- Payoff: 100% to the depreciation of the CHF against a currency basket composed of 40% EURCHF, 30% USDCHF, 20% GBPCHF and 10% JPYCHF
Result after two weeks of marketing (29th of august): the subscriptions were not high enough to issue the product. In other words, no one seemed to be interested. Still persuaded it was a good idea, I prolonged the subscription time for one more week, mailed, called and visited clients and relationship managers personally. Result after that week: not a centime worth of additional subscriptions. Disgusted, I cancelled the product. That was Monday the 5th of September 2011 at 15:45 and the EURCHF was trading at 1.1050. The morning of the next day, the SNB fixed the rate at 1.20. Talk about timing! The clients would have gained close to 10% overnight.
In the meantime, other banks have tried to issue similar products. On the 15th of August, ZKB tried to launch a similar, 1-year product as described above. Same basket, same weightings. Looks like somebody is reading my blogs, after all. Hello Guys! I couldn’t find the issue in their database, though, so they must also have cancelled it because of low subscription volume. Otherwise, the product would be a good candidate for the next Swiss Derivative Awards. I recall a similar attempt by Julius Baer. On the 19th of August, that bank issued a 6-month, 94% capital guaranteed product on the EURCHF, the only one I have found in their database. At least someone managed to get this idea issued.
It looks like in these difficult market times, the clients are not easily convinced about any idea, as good as it may be. I discussed with some people and we even started to wonder whether it’s worthwhile to market anything at all until some form of stability returns. Well, we all concluded that we’d abide by the mantra “never, ever, give up!”
After all, no crisis has ever killed the market either.
Currency and market swings
August 8th, 2011 by Andreas BlümkeAt the time I write this, all major western market futures are down 5% or more for the day, the DAX Index being the worst hit with a minus of over 7%. Currencies fare no better, the Swiss Franc gaining (once more) over 2% against the Euro and 1.5% against the US Dollar. Pardon me the analogy, but it looks like the Swiss Franc has taken the role as the world’s only safe haven, becoming thus for many investors the wished-for alternative world reserve currency. It’s quite incredible to note that this year, a USD or EUR based investor could have invested in Swiss stocks and practically incurred no loss, while an investor whose reference currency would have been the CHF would have lost over 20%. The debt crisis has raised the swings in the exchange rates to where stock volatility usually trades: EUR/CHF 30 day historical volatility is over 20% (!), where one year ago it quoted at 10% and 5 years ago at around 4%. Read the rest of this entry »
100% capital guarantee in CHF and short maturity?
March 19th, 2011 by Andreas BlümkeCan be done, and not only with sugar or other strongly backwardated commodities. In these times of high foreign exchange volatility, there’s a structure that looks very attractive: the Shark Note. Read the rest of this entry »
Capital Guarantee on FX Basket
November 28th, 2010 by Andreas BlümkeHello, long time no hear. Too much on my mind of late, so pretty few posts over the last months. Yet I’ll take a few minutes to write about the latest product we launched together with a large investment bank. It’s a 100% capital guaranteed product in Euro, based on a basket of currencies with a maturity of 2.5 years . The currencies are the Brazilian Real (BRL), the Australian Dollar (AUD), the Norwegian Krone (NOK) and the Canadian Dollar (abbreviated “BANC”), equally weighted against the Euro (EUR). It doesn’t pay any regular coupon, but at maturity, if the basket has appreciated at least by a single pip (0.01%), then a digital coupon of 16% is paid. In addition, if the basket appreciates by more than 16%, the coupon amounts to 100% of the appreciation. If the basket has depreciated against the Euro, the product doesn’t pay any coupon and redeems at par (100%). Read the rest of this entry »
Profit from FX trends with structured products
July 8th, 2010 by Andreas BlümkeForeign Exchange (FX) has one characteristic that other asset classes don’t have: strong trends. With the current unstable macro-economic situation of sovereign countries, notably the whole Euro-bloc, FX trends are stronger than ever. Just consider the EUR/USD FX-rate; it dropped practically straight down from 1.60 to 1.25 in the second half of 2008, rebounded to 1.50 over the next year and dropped back to 1.25 in 2010. Those are huge moves, for major currencies. Read the rest of this entry »
Capital guarantee is still possible, even with high vol and low rates
June 19th, 2010 by Andreas BlümkeYou’d think that with current high volatility and low interest rates, the environment is unfriendly for capital guaranteed products on a stock index? You’d be absolutely right. However, there are means to circumvent these problems and still come up with a structure that has very high chances to yield a good performance while limiting the risk. Read the rest of this entry »
Outperformance certificates trick number two
April 12th, 2010 by Andreas BlümkeLately, I was made aware by a colleague how to improve the short-term outperformance certificate on a high dividend-paying single stock (see my previous entries). Since the stock will fall by the amount of the dividend on the dividend ex-date, an outperformance certificate will not perform well until the stock price has recovered by the amount lost on the dividend pay date. However, setting the strike slightly in the money will circumvent that drawback. Read the rest of this entry »
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