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 benefits at a glance:
An investor expects the price of an underlying to rise. He buys a 3 x long constant leverage certificate on it and therefore participates in changes in the price of the underlying with a factor of 3. The following table shows the developments over 5 days.
Important: For a period of more than one day, the performance of the underlying cannot be simply multiplied by a factor of 3 as the previous day’s price always forms the new basis of calculation («Resetting») for constant leverage certificates.