Derivatives Analysis and Structured Products Ideas

Transcription

1 Ucap Hong Kong Asset Management Limited Derivatives Analysis and Structured Products Ideas 24 th November 2015

2 Market parameters Implied correlation Decreased last week with the market positive performance. Globally speaking, correlation is still above average in Europe (one star effect) and below average in the US (capital protected + WO call). Asian indices are good candidates for diversification. Volatility remains the key parameter to extract value when trading WO structures. Underlying Corr Low Range High Average North/Latin America x Now o Avg Dow Jones Industrial x-- --o S&P x-o Nasdaq o-x Russel x-o S&P/TSX o-x Europe/Africa/Middle East Euro Stoxx o-x FTSE o x CAC o x DAX o-- --x Swiss Market o-- --x Asia/Pacific Rim Nikkei x-o Hang Seng o-- --x S&P/ASX o-x Parameters Term: 3M Range: 2Y

3 Volatility: Skew overview Skew Decreased over last week (around 0.5 point in Europe and the US). Interesting to look at digital options (Current flatness of upside skew ( ) makes them an attractive investment) as well as callable capital protected note for stocks/indices with low skew. For the others, for which skew is relatively high, look at OTM Puts to finance yielding structure. 90% Strike 110% Strike 3M 90% - 110% Spread Underlying Implied Vol Implied Vol Spread Low Range High Average North/Latin America x Now o Avg Dow Jones Industrial o-x S&P o x Nasdaq o x Russel o-x S&P/TSX o x CBOE SPX Volatility o x Europe/Africa/Middle East Euro Stoxx x-o FTSE o x CAC x-o DAX x o Swiss Market o x Asia/Pacific Rim Nikkei o x Hang Seng o-- --x S&P/ASX x-o Kospi o-x NSE CNX Nifty x-- --o Parameters %Money: 90%/110% Term: 3M Range: 2Y

4 Product Ideas 6m maturity If Final > 103% * Initial, then Payoff = 100% + Bonus If Final <100%* Initial, Payoff = Final / Initial Otherwise, 100% AC FP Equity 16.9% EUR SIE GY Equity 13.9% EUR AF FP Equity 21.2% EUR GLE FP Equity 13.2% EUR ALO FP Equity 14.7% EUR STM FP Equity 10.6% EUR CS FP Equity 15.3% EUR UCG IM Equity 17.7% EUR BAS GY Equity 13.6% EUR VK FP Equity 15.6% EUR BMW GY Equity 15.4% EUR VIE FP Equity 24.2% EUR BNP FP Equity 15.4% EUR DG FP Equity 17.1% EUR EN FP Equity 17.3% EUR VIV FP Equity 10.6% EUR CAP FP Equity 13.7% EUR DTE GY Equity 35.8% EUR CA FP Equity 11.3% EUR CBK GY Equity 10.7% EUR ACA FP Equity 11.2% EUR ROG VX Equity 15.5% CHF DAI GY Equity 16.1% EUR ABBN VX Equity 13.9% CHF AIR FP Equity 11.5% EUR SLHN VX Equity 17.0% CHF KER FP Equity 14.1% EUR GALN VX Equity 21.3% CHF LG FP Equity 12.6% EUR UBSG VX Equity 13.8% CHF ML FP Equity 11.2% EUR GIVN VX Equity 14.1% CHF UG FP Equity 12.4% EUR MSFT.OQ 10.3% USD PUB FP Equity 15.8% EUR PFE.N 13.1% USD SGO FP Equity 18.4% EUR PRU.N 11.5% USD SAN SM Equity 15.0% EUR DOW.N 14.1% USD INTC.OQ 10.8% USD

5 Volatility: Global overview Implied volatility 3M Volatility levels are lower(around 1-2 points up in Europe and the US). Be opportunistic on selective companies for which vol spike has been exacerbated (see Global Leaders lists or recommendations). Underlying Vol Low Range High Average North/Latin America x Now o Avg Dow Jones Industrial o-x S&P o-- --x Nasdaq o-x Russel o-x S&P/TSX o x CBOE SPX Volatility o x Europe/Africa/Middle East Euro Stoxx o x FTSE o-- --x CAC o x DAX o x Swiss Market o x Asia/Pacific Rim Nikkei x-- --o Hang Seng o x S&P/ASX o x Kospi x-o NSE CNX Nifty x o Parameters %Money: 100% Term: 3M Range: 2Y

6 Volatility: Global overview Volatility Curve for SX5E last week (SX5E index up 2.73% over the last week). 5Y IV around 21.3 compared to 21.1 last week (1Y lowest level : 18.6) 1Y IV around 20.7 compared to 21.3 last week (1Y lowest level : 17.8) 3m IV around 20.6 compared to 21.7 last week (1Y lowest level : 16.1) 1m IV around 20.2 compared to 22.1 last week (1Y lowest level : 13.9) Term structure is back to normality, almost flat. Short term volatility is still well paid if you expect a market normalization. Benefit from this by investing in Daily Range Accrual structures, decreasing autocallable structures and monthly autocallability ATM 1M IV ATM 1Y IV ATM 3M IV ATM 5Y IV

7 Volatility: SPX analysis Volatility Curve for SPX for last week (SPX index up 3.27% over last week). 5Y IV around 21.8 compared to 22.2 last week (1Y lowest level : 18.4) 1Y IV around 17.3 compared to 18.4 last week (1Y lowest level : 15.0) 3m IV around 15.1 compared to 17.7 last week (1Y lowest level : 12.0) 1m IV around 13.5 compared to 17.1 last week (1Y lowest level : 9.5) The curve is now back to normal situation. More interesting to go for longer tenor for US stocks to benefit from the currently high LT volatility. We do not expect ST volatility to drop substantially from these levels. Uncertainty around the timing of the first hike will likely keep markets on edge ATM 1M IV ATM 1Y IV ATM 3M IV ATM 5Y IV

8 Product Ideas 2 YearsUSD YETI WO on Raytheon / Lockheed Martin / Northrop Grumman Currency USD Maturity 24 Months Coupon 2.20% quarterly if above 75% (with memory effect) 8.80% p.a. Autocall Quarterly if above 100% Redemption at Maturity At 100% if WO above 75% Protection 75% European (25% downside protection) Ticker RTN US - LMT US - NOC US 2 YearsUSD YETI OneStar WO on BAE Systems / Finmecanica/ Airbus Currency USD Maturity 24 Months Coupon 2.80% quarterly if above 75% (with memory effect) 11.20% p.a. Autocall Quarterly if above 100% Redemption at Maturity At 100% if the BO underlying is above 105% of its strike price One Star Level = 105% At 100% if WO above 75% Protection 75% European (25% downside protection) Ticker BA/ LN - FNC IM - AIR FP

9 Product Ideas 2 YearsUSD AutocallDecreasingLookbackWO on Nike / Apple / Disney Currency USD Maturity 24 Months Coupon 3.00% paid if autocalled (with memory effect) 12.00% p.a. Autocall triggers Q1 100% ; Q2 97% ; Q3 94% ; Q4 91% ; Q5 88% ; Q6 85% ; Q7 82% ; Q8 79% Lookback strike Individual weekly lookback on the first 6 weeks (last observation Dec 29th) Redemption at Maturity At 100% if WO above 79% Protection 79% European (21% downside protection) Ticker NKE US AAPL US DIS US 2 Years USD Autocall Decreasing Lookback WO on Microsoft / Boeing / Chevron Currency USD Maturity 24 Months Coupon 3.50% paid if autocalled (with memory effect) 14.00% p.a. Autocall triggers Q1 100% ; Q2 97% ; Q3 94% ; Q4 91% ; Q5 88% ; Q6 85% ; Q7 82% ; Q8 79% Lookback strike Individual weekly lookback on the first 6 weeks (last observation Dec 29th) Redemption at Maturity At 100% if WO above 79% Protection 79% European (21% downside protection) Ticker MSFT US BA US CVX US

10 Product Ideas 5 Years USD CLN with conditional coupon on Brazil Currency Maturity Coupon Redemption at Maturity Underlying USD 5 Years 6.20% semi-annually if the CDS never traded above 900bps (no memory) at 100% if no credit event occurs. Else, the investor receives the floating recovery rate as well as the accrued coupon. Brazil Alternatives: 7.00% p.a. coupon with coupon barrier 800bps 8.50% p.a. coupon with coupon barrier 650bps

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