Equity Linked Notes - anyone

[elnewbie]

Hi,

Has anyone here ever invested in Equity Linked Notes ? Different banks use the term differently, but how it works is that you determine the Strike percentage and after one month, if the underlying shares are below the strike level, you get the shares, if not, you get the cash + interest (which can be quite high as 10% annualised)

For me, i use it as a cheap way to buy shares which i am very comfortable with, without having to pay brokerage fees.

If anyone has any thoughts or opinions, please do share. Am interested to hear alternative views.

Thanks
elnewbie

 

[cbsh38584]

Hi,

Has anyone here ever invested in Equity Linked Notes ? Different banks use the term differently, but how it works is that you determine the Strike percentage and after one month, if the underlying shares are below the strike level, you get the shares, if not, you get the cash + interest (which can be quite high as 10% annualised)

For me, i use it as a cheap way to buy shares which i am very comfortable with, without having to pay brokerage fees.

If anyone has any thoughts or opinions, please do share. Am interested to hear alternative views.

Thanks
elnewbie

I have been invested ELN since early 2000. My advise. AVOID at all cost unless U want to pay "SCHOOL FEE" to gain some experience.

I have asked my friend not to do ELN on Keppcorp. But he did not listen to my advise. He says he don't mind keep the stock if it get converted. FYI, he (new to ELN) get converted Keppcorp stock @$8.70. Now regret.

 

[odie2108]

I have been invested ELN since early 2000. My advise. AVOID at all cost unless U want to pay "SCHOOL FEE" to gain some experience.

I have asked my friend not to do ELN on Keppcorp. But he did not listen to my advise. He says he don't mind keep the stock if it get converted. FYI, he (new to ELN) get converted Keppcorp stock @$8.70. Now regret.

very true
tough to make money on this

 

[Shiny Things]

Has anyone here ever invested in Equity Linked Notes ? Different banks use the term differently, but how it works is that you determine the Strike percentage and after one month, if the underlying shares are below the strike level, you get the shares, if not, you get the cash + interest (which can be quite high as 10% annualised)

For me, i use it as a cheap way to buy shares which i am very comfortable with, without having to pay brokerage fees.

If anyone has any thoughts or opinions, please do share. Am interested to hear alternative views.

Yeah, these are a TERRIBLE investment. I used to be on the other side of these notes (on the FX side, not the equity side, but the principles are still the same), and I can tell you: banks LOVE you if you do this stuff, because you're writing huge cheques to the bank.

What you're doing is you're basically selling put options on the stock: if the stock price plunges, you end up buying the stock at an above-market price. Bad earnings report? You're wearing it. Bad publicity? You're wearing it. CEO dies? You're wearing it. Company does an Enron and abruptly goes bankrupt? You're losing your entire deposit.

The other key thing is - remember how I said you're selling an option? That option has a price, and when you sell the option through an ELN you're usually getting maybe half of the fair price of that option. The other half gets split between the bank's equity options desk, and the RM who sold you the option. So if you were getting a fair price, your interest rates would be around 20% annualised instead of 10% annualised.

So on the one hand you're saving on brokerage, which is not that expensive anyway with Stanchart; but on the other hand you're paying way more than that because you're not getting paid a fair price for the option you're selling.

-------------------

In the USA, where there's a liquid listed equity options market, you can synthesise your own ELNs and get a fair price for them by selling the options on the exchange. In Singapore, there's no real options market (there's the listed warrant market, but for market-structure reasons I think the warrants market typically trades cheap, which is not what you want when you're a seller), so there's no way to get a fair price... so it's not worth bothering in the first place.

 

[satayxp]

tried few times on stocks like sinktel n starfug..
as shiny said.. overall the customer is holding the raw end of the stick

 

[cbsh38584]

I have been invested ELN since early 2000. My advise. AVOID at all cost unless U want to pay "SCHOOL FEE" to gain some experience.

I have asked my friend not to do ELN on Keppcorp. But he did not listen to my advise. He says he don't mind keep the stock if it get converted. FYI, he (new to ELN) get converted Keppcorp stock @$8.70. Now regret.

I still invested ELN (Equity link note) , FCN (fixed coupon note), EFCN (Enchanced FCN). I only invest & select the stocks I have comfortable with &
entry price must be during the bear mkt. I pay the initial "school fee" to learn
& so far Ok after >10 yrs.

In Mid July15 during the correction phase, I invested in DAC(Daily accured interest) on China life & AIA HK. Tenor 12 mths. Coupon 12%. Barrier 81%. K.O 100%. Stock selection & entry timing is very very important.

1st payout US$2500
2nd Payout US$1875
3rd payout US$2000
4th Payout US$2500? (next 10 days due)
& continue till it et K.O @100% if not continue to roll till the 12th payout which can be ZERO if fall below the 81% strike price.

 

[wahkao3]

The other key thing is - remember how I said you're selling an option? That option has a price, and when you sell the option through an ELN you're usually getting maybe half of the fair price of that option. The other half gets split between the bank's equity options desk, and the RM who sold you the option. So if you were getting a fair price, your interest rates would be around 20% annualised instead of 10% annualised.

Totally agreed
thats what banks love to do.

they take high risk high return products, pocket and difference and sell it to you as a high risk, low return product . Very sneaky

These people have no value add. The only ones in the financial industry with real value add are the ones who provide low risk, high return opportunities

 

[wondrdoggie]

Actually I have been investing in ELNS and FCNS for about 5 years now but only for US equities. At any one time I usually have 2-3 elns running. So far so good. 3 times my eln went below the strike price and I had to pick up the stocks. Twice was Apple and once was BABA. After holding for like 2 years, Apple came back very strong as you all know. I made a lot of money from that. I am still making a loss from BABA but it's almost back to my strike price already. Meanwhile I do covered calls to nibble back a little from the losses.

Average coupon return from elns for me is about 11%.

But... This is really gambling. I am comfortable with it base on my own criteria and risk profile.

Rate wise you are paying a premium when you buy a structured note. I know you can DIY in the US market but I rather the banks do it for me. That's just me I guess.

 

[Shiny Things]

& continue till it et K.O @100% if not continue to roll till the 12th payout which can be ZERO if fall below the 81% strike price.

I reckon you'll find that if the final fixing is below 81%, you start losing even more money - that's the nasty little sting in the tail of most of these "autocallable" structures. Might want to check the documentation.

Incidentally, autocallables are even worse than regular ELNs, because they have two outcomes:
* Pay high interest and knock out early; or,
* Pay low or no interest and keep you locked in for a long time.

 

[w1rbelw1nd]

Just want to share that I was interning in a foreign bank wealth operations side, and I saw that the banks make aa huge (2+%) cut on top of the price offered by wholesale banks for each of these financial products sold...

I have no idea how much the wholesale side earn from the transaction, but I would reckon it will not be any less than the wealth management side.

Anyway, my opinion is that while all these funky financial products might seem like a great buy qualitatively, quantitatively it is unattractive. Be very wary when someone is selling you a financial product when he is harping on the qualitative factors, because they may just knock off a few % on the quantitative side to earn from you.

 

[Perisher]

Actually I have been investing in ELNS and FCNS for about 5 years now but only for US equities. At any one time I usually have 2-3 elns running. So far so good. 3 times my eln went below the strike price and I had to pick up the stocks. Twice was Apple and once was BABA. After holding for like 2 years, Apple came back very strong as you all know. I made a lot of money from that. I am still making a loss from BABA but it's almost back to my strike price already. Meanwhile I do covered calls to nibble back a little from the losses.

Average coupon return from elns for me is about 11%.

But... This is really gambling. I am comfortable with it base on my own criteria and risk profile.

Rate wise you are paying a premium when you buy a structured note. I know you can DIY in the US market but I rather the banks do it for me. That's just me I guess.

Hmm, I don't think that's a good investment, some of your other investment with the banks seems poor too... you seem to like bank products alot.
Just saying.

 

[Shiny Things]

Just want to share that I was interning in a foreign bank wealth operations side, and I saw that the banks make aa huge (2+%) cut on top of the price offered by wholesale banks for each of these financial products sold...

I have no idea how much the wholesale side earn from the transaction, but I would reckon it will not be any less than the wealth management side.

Ehh - you'd be surprised. The wholesale side usually doesn't make as much as you'd think; when I was running a DCD flow book, the wealth management desk would always cross my spread to trade with me, but that's small potatoes compared with how far the wealth management desk marked up my prices. If I was taking x on a given trade, the WM guys were taking anywhere from 3x to 10x.

 

[Mancunian2]

Just want to share that I was interning in a foreign bank wealth operations side, and I saw that the banks make aa huge (2+%) cut on top of the price offered by wholesale banks for each of these financial products sold...

I have no idea how much the wholesale side earn from the transaction, but I would reckon it will not be any less than the wealth management side.

Anyway, my opinion is that while all these funky financial products might seem like a great buy qualitatively, quantitatively it is unattractive. Be very wary when someone is selling you a financial product when he is harping on the qualitative factors, because they may just knock off a few % on the quantitative side to earn from you.

i have seen trades where the bank took a 30% cut

It was 9 years ago, and when that particular customer realised , he was furious and stopped doing business with the bank altogether

btw, it was 30% of $3 million on a 4-year deal, iirc

 

[cbsh38584]

I have a E-trade account. My broker is willing to teach me how to price a option through E-trade platform to save huge cost doing at bank. I did not follow up. I seldom to ELN , FCN , EFCN etc.When mkt comes down a lot, I will likely to invest in ELN.FCN etc. So far, I did only one FCN & DAC each for 2015.

 

[SCG8866T]

I did alot of equity linked notes for my AI clients. Basically the coms is embedded in the spread, makes ppl think that there is no com. Basically its a tool to use during a consolidating market phase. As long as the stock dont move up too much(or else buying the underlying equitiy will be more worth it) and dont drop too much, the bull eln investor will get the yield for the month, they have then option to roll over againand again everymonth if price closes above the strike.

There is also bear eln, but this is more troublesome, as you will need to have the notional amt of shares in your cdp before you can buy. Also one cannot say its bad due to the spread is bad, its a willing buyer willing seller market, its a good tool mainly for AI to make consistent gains during a consolidating market phase.

 

[wondrdoggie]

Hmm, I don't think that's a good investment, some of your other investment with the banks seems poor too... you seem to like bank products alot.
Just saying.

No offense taken.

Guess it makes sense for me to let the banks handle most of my investments because I don't really want to spend too much time DIY-ing. I am ok paying the fees. That's just me, my personality and aptitude. I just look at my total return net of fees and I think I am doing ok. I make enough to not work, grow my wealth and have a pretty good life. That's my objective so I won't sweat it that I could have gotten 1-2 point more by spending more effort on it.

My bad experiences with bonds were a result of not understanding the risks involved with junk bonds or delusions that defaults are unlikely and won't happen to me. I have taken steps to rectify that. I am still learning.

Among all my investments, I am actually most excited by private equity. I am part of PE funds that are involved in the Dell, Avago, YG group, Crystal Jade deals etc. Those are doing pretty well.

Anyway different strokes for different people. What I hope to do is another startup in a totally different industry from my last one. What is missing from investments is control, with your own company, you only have yourself to blame, whether failure or success.

 

[wahkao3]

Ehh - you'd be surprised. The wholesale side usually doesn't make as much as you'd think; when I was running a DCD flow book, the wealth management desk would always cross my spread to trade with me, but that's small potatoes compared with how far the wealth management desk marked up my prices. If I was taking x on a given trade, the WM guys were taking anywhere from 3x to 10x.

their markups are incredible!

 

[wahkao3]

Guess it makes sense for me to let the banks handle most of my investments because I don't really want to spend too much time DIY-ing. I am ok paying the fees.

if you pay for performance, or low risk high return, thats fine

but usually, we pay for underperformance
what a bad deal

 

[CaptainWu]

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?

 

[reddevil0728]

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?

What do you mean “what strategy bank is doing”

like themselves or what?