My-Structured-Products.com

Well, the floored floaters have run their course for most of the issuers. As the credit spreads dwindle, these products become less appealing, at least for the first tier issuers.

As the equity volatility has also fallen dramatically, there’s no point in selling it in the form of reverse convertible either. With the main FX  pair volatility also at low levels, I wonder what the best structure would be to invest in. And I remember a structure for which I always had a faible. Shark Notes.

Shark Notes are capital guaranteed products, which have usually a 100% participation to an equity index, an FX pair or a commodity, but feature a barrier that knocks out once a certain performance is reached. That may not sound appealing, but the fact is that these structures, when constructed in the right way, can potentially generate huge profits with very limited risk. Consider a Shark Note in guaranteed EUR  that participates to 100% to the appreciation of the RUB against the EUR or the BRL against the EUR, with a barrier placed at 130% (i.e. the RUB would have to appreciate by 30% before the note knocks out, that would be below the multi-year lows of this FX pair). Not bad? It gets even better. As the embedded options are very cheap, consider putting 2% of your capital at risk (i.e. guaranteeing the product at 98%) and you get a rebate of >10% if a knock-out occurs. So in case the RUB appreciates against the EUR, no matter by how much, you beat the Money-market rate big time, potentially approaching equity returns. All this for 18 months maturity; beats everything in my humble opinion. If anybody issues such a note, be so kind and let me know.