Equity Linked Notes - anyone

[CaptainWu]

What do you mean “what strategy bank is doing”

like themselves or what?

I mean Bank likely be using option or other strategy to hedge the position. If only one share involved likely they just do sell put or something similar but for a basket of shares not sure about.

 

[boliao123]

This is probably for banks to hedge out their risk/exposure, you eat the risk for a reduced return/risk ratio

 

[somnam3]

I find ELN only benefits the bank, if any of the underlying equities hit strike price, you got to swallow the stock.
All the risk is on you.
Worse is they’re usually packaged with 3 stocks, so any one cui will hit you.

 

[reddevil0728]

I find ELN only benefits the bank, if any of the underlying equities hit strike price, you got to swallow the stock.
All the risk is on you.
Worse is they’re usually packaged with 3 stocks, so any one cui will hit you.

If you see it from another perspective say you interested in the 3 stocks but u dunno when to enter. Technically this provides downside protection in some case. So got purpose one.

 

[sohguanh]

I find ELN only benefits the bank, if any of the underlying equities hit strike price, you got to swallow the stock.
All the risk is on you.
Worse is they’re usually packaged with 3 stocks, so any one cui will hit you.

My sister was on this and like you say one of them cui she is hit. Guess what to lure her to play they offer her a good FD rates as something bundled together to attract her to play ELN. She put into FD one portion of monies the rest on ELN. They got minimum to play my sister high earner told me 100k !

 

[Shiny Things]

Just came across recently from friend that he is doing ELN kind with a basket of shares from bank. Checked and found DBS has it called Bear/Bull Note paying attractive 12% (1% per month). Personally I did it before decade ago in HK ended up getting shares not able to recover even its blue chip stock. Now that with a basket of shares even more complicated as it would take the worse performer as final benchmark. Just curious and interest to know what option strategy bank is doing, is that a multiple sell Put option? For Singapore is that just for AI or Private Client only?

I'd need to look at the term-sheet to reverse-engineer it, but from what you've described, it sounds like the client - not the bank - the client is selling a "worst-of put option" to the bank. That means the client gets paid a small amount of cash (which is where the "1% per month" comes from), in return for giving the bank the right to stuff you with the worst performer of any of a basket of shares.

My position hasn't changed since this thread was started in 2015 - these are still a comically bad investment.

 

[CaptainWu]

My position hasn't changed since this thread was started in 2015 - these are still a comically bad investment.

Thanks Shiny. If someone familiar with option then surely this is bad. I have to say this is still pretty attractive for those not so familiar with stock by giving them high yield with component stocks like Google, Microsoft. Devil probably the weakness link as a 2nd tier stock need to be part of it, otherwise the yield will be extremely low and not attractive at all.

Personally I think its risky but I found it difficult to convince my friend not to do except giving the experience on Lehman Brother case

 

[RedsYWNA]

Might as well write options yourself on the US exchanges, and save yourself the bank spread.

Google, Apple, QQQ, SPY options are v liquid.

 

[RedsYWNA]

Yesterday, a bank RM was proposing an MAS bill-linked note to me. Basically, we retailers are not allowed to buy 4 weeks MAS bills. So the bank is proposing us to buy a guaranteed note linked to the 4 weeks MAS bill, and charging a 0.25% spread.

He was laughing that MAS protects the banks by only allowing financial institutions to buy the 4 weeks MAS bills, unlike US where competition is v open.

 

[reddevil0728]

Might as well write options yourself on the US exchanges, and save yourself the bank spread.

Google, Apple, QQQ, SPY options are v liquid.

Provided this person knows how to do it lor.

not all knows

 

[RedsYWNA]

Provided this person knows how to do it lor.

not all knows

The equity linked notes actually appear more complex, but yah some people just want the info handed on a plate by the RM.

 

[reddevil0728]

The equity linked notes actually appear more complex, but yah some people just want the info handed on a plate by the RM.

Yep n they willing to pay for it.

not everyone is as hardworking for such stuff.

that’s why there’s always a market for such stuff

 

[Melsolut]

ELNs have, in short, limited upside and unlimited downside.

 

[SpeedingBullet]

They're called all sorts of names, now I see them being referred to as Fixed Coupon Notes (FCNs).

Just remember they're simply sales of put options where the bank and your RM eats about half the premiums you'd normally take if you did it yourself. You can do a quick and rough check:

Say your strike is 80% of current spot of $100, just use your broker to check the options prices of the Puts' premiums of that very strike price ($80) and then calculate the % p.a. return on the premium / notional exposure - you can get a very rough sense of where the return is at vis-a-vis your RM's quote.

 

[reddevil0728]

They're called all sorts of names, now I see them being referred to as Fixed Coupon Notes (FCNs).

depends on the type of note. just that people use it interchangeably

Just remember they're simply sales of put options where the bank and your RM eats about half the premiums you'd normally take if you did it yourself. You can do a quick and rough check:

Say your strike is 80% of current spot of $100, just use your broker to check the options prices of the Puts' premiums of that very strike price ($80) and then calculate the % p.a. return on the premium / notional exposure - you can get a very rough sense of where the return is at vis-a-vis your RM's quote.

not everyone as savvy when it comes to this kind of stuff. so there's always a purpose 1

 

[JuniorLion]

You pay to be lazy. That's how it is.

That's why endowment plans and savings plans continue to be sold by Insurance Companies.

 

[fr33d0m]

CDS comes back with vengeance?

anyone still remembers CDS from Bear Stern and Lehman Bros?