A call option/warrant confers the right to purchase at a specific point in time (European-style) or during a specific period of time (American-style) a specific amount of a specific underlying security at a specific price. Thus an increasing price for the underlying instrument causes the value of the option right to increase and hence the option, itself. As a result, the purchaser of a call benefits from the price appreciation of the underlying instrument. Call warrants are essentially the securitised form of standardised call options. Consequently, they are easier to trade for private investors.
Many structured products feature a cap. The value of the product can never exceed that particular level. In return, these products are priced lower than a comparable uncapped product type or the underlying instrument, itself.
See Definition of Discount Warrant
Cash settlement takes place when on the maturity date the holder of a leveraged or structured product does not receive delivery of the underlying instrument but instead a cash payment. For some underlying instruments, it is impossible to make physical delivery (e.g. in the case of indices), and for others it is often undesirable (e.g. pork bellies), so that today many products are settled in cash at maturity. Cash settlement can also take place with products based on specific shares.
From a legal standpoint, almost all structured products are considered to be debentures of the issuer. Once investors purchase a certificate, they become creditors of the issuer of the product. Certificates are classed among the securitised derivatives. These products can vary greatly in the features they offer - from capital-guaranteed products to speculative instruments with built-in leverage, everything is possible these days.
|Constant Leverage Certificate
These instruments allow investors to leverage rising (long) or falling (short) prices. The selected leverage, which is constant on a daily basis, grants disproportionately high participation in price changes in the underlying. Unlike knock-out warrants and mini-futures, constant leverage certificates do not have a knock-out barrier. In addition, the implied volatility of the underlying does not influence their price. Furthermore, the products have an unlimited (open-ended) term and are not subject to a loss of time value.
The intrinsic value of a corridor warrants increases by a fixed amount with each day that the underlying instrument remains within the predefined corridor. At expiry, the accrued intrinsic value is paid out. Caution: There are also corridor warrants on which a fixed amount is deducted from intrinsic value for each day that the underlying instrument trades outside the corridor.
COSI (Collateral Secured Instruments) are subject to a collateralization mechanism defined by SIX Swiss Exchange. This mechanism sets clear requirements for the quality of the collateral that is pledged, its administration and, where required, also its realization. COSI products thus minimize the investor's issuer risk.