but interestingly enough I've been seeing a big increase in 2017 in these structured products, mostly geared toward the retail client......telling ?
Exotic options: Single- and Double-Barrier Options
- Thread starter hhiusa
- Start date
Where? To which clients? Which particular products? Which bank is pushing those? And how do you exactly define "big increase".
indeed. I must have misunderstood the meaning of "retail investor", which I know I haven't. Retail investors as no-account minimum customers of brokerages like Etrade, Scottrade, TD, Schwab,... and smaller ones with highway robbery commissions like $6 flat. Why would investors who can't afford the $10K minimum of IB be offred those instruments? Some of those aforementioned do not even offer market data.
I call them churn-n-burn and pump-n-dump, they just want cash flow on the books.
I call them churn-n-burn and pump-n-dump, they just want cash flow on the books.
I have looked at a LOT of these equity exo notes in 2016. Offered by every bank, but especially the yanks (e.g. Citi, Stanley, etc).
A typical one is a callable range accrual note linked to, say, a basket of equity indices (e.g. FTSE and SPX). There are lots of other different variations of these, both in terms of payout features, but also in terms of the underlying (linked to single names, commodity prices, etc etc).
These things work bigly yuge for the banks, for a whole variety of reasons. Occasionally, they are not too shabby for the investor, but the pricing matters.
A typical one is a callable range accrual note linked to, say, a basket of equity indices (e.g. FTSE and SPX). There are lots of other different variations of these, both in terms of payout features, but also in terms of the underlying (linked to single names, commodity prices, etc etc).
These things work bigly yuge for the banks, for a whole variety of reasons. Occasionally, they are not too shabby for the investor, but the pricing matters.
I think the biggest beneficiary after the originating banks are those trading desks at bank prop groups or hedge funds that pick up some of the leftover hedges from the originating desks. Pricing is often very attractive. This is exactly where structures like "Corelito" (was it BNP or SocGen) originated from. Basically notes on the difference between options on equity baskets and basket of constituent options (if I remember correctly), a dispersion note, so to speak.
Yes, occasionally, you could argue that the "invisible hand" is genuinely at work and everyone gets something out of it. However, this is not too frequent.
Lol, a number of exotics desks have blown up on this particular one (long dated index basket auto call). Some vol and correlation markets are actually dominated by these products now, like the NKY skew (my bread and butter lately). In fact, you don't want to provide hedges, you want to be aligned against the exotics desks in both correlation and skew - their pain will be your gain at some point.
@dumpdapump UBS, Wells, MS, ML all have brought a slew of new structures products out in the last 6 months targeted at their client base. Some with a knock out structure, some with a low guarantee return as worse case. Offerings are across asset classes, oil/energy, Spx, I rates, etc.
If your dying for more specifics call your advisor/broker !
And I believe MH indicated the same in post #34
@hhiusa When I used the term "retail" in this case I was referring to wire house clients...generally with assets under management 250k to 3 million.
@Martinghoul I bigly yuge agree ! If you de construct many of these structures offerings, you'll be amazed at the vig the bank is keeping.