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Wednesday, June 15, 2022
Derivatives Idea - $SPX 3 Month Participation Structure
* Trading in financial market carries risk and can result in loss of capital.
* This performance is only observed with historical backtests and not traded by the company.
The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.
Risks & Assumptions
The strategy is a 3 Month Participation structure on the $SPX index. This is based on a 1 lot holding of $SPX at the last price of $3,770. The participation starts from 103.37% (Knock-In Level ) of the last price i.e. at the $3,897 level. Between the range of $3,897 - $4,200, the participation rate is 55%. Above $4,200, the average participation rate is 85%. The average participation rate is 75% above the breakeven price of $3,897. The initial cost to enter this structure is 0.40% ($15/Unit).
While the structure assumes an overall upside and allows participation based on the client's underlying holding, the max loss towards the downside is capped at -5.23%. Capping losses will be especially beneficial in the current market context as any more legs of sharp downfall would be protected.
|Underlying||Expiry||Price Range Considered||Last Price||Exposure Size||Initial Premium Paid||SPX Long Position Established||1* Put Buy||1 * Bull Call Spread||Max Profit||Max Loss||Breakeven Point|
|$SPX||16th September 2022||$2,700 - $5,000||$3,770||1 Lot = 100 Units||$15 (0.40%)||At Last Price||ATM Strike -100%||98.14% Call Buy -100 % ATM Call Sell||$110,300.00||$(19,700.00)||Above $3897 (103.37% Knock In)|
Data Source : Bloomberg
Data & Prices as of : 15/06/2022 US Markets Open
Comparison with Normal $SPX Buy & Hold
Data Source : Excel Calculations
Strategy Payoff Chart
Data Source : Excel Calculations
Risks and Assumptions for Back-tested trading strategies
Data Source: Bloomberg
Data & Prices as of: 15/06/2022 US Market Open
Arun Leslie John
Chief Market Analyst
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