Derivatives Analysis and
Structured Products Ideas
UcapUcapUcapUcap Hong Kong Asset Management LimitedHong Kong Asset Management LimitedHong Kong Asset Management LimitedHong Kong Asset Management Limited
16th February 2016
Market parameters
� Implied Correlation
� Correlation slightly up since last week but, remaining high. One star effect still to be considered for
new structures. Asian indices remain good candidates for diversification.
� Correlation in Europe is around average levels.
16 February, 2016
Parameters
Term: 3M
Range: 2Y
Underlying Corr Low Range High Average
North/Latin America xxxx Now oooo Avg
Dow Jones Industrial 0.60 0.35 ----------------------------oooo--------------------xxxx---------------------------- 0.75 0.51
S&P 500 0.62 0.34 ----------------------------oooo----------------------------xxxx-------------------- 0.71 0.48
Nasdaq 100 0.54 0.22 ----------------------------oooo------------------------------------xxxx------------ 0.61 0.37
Russel 2000 0.57 0.08 ----------------------------oooo----------------------------------------xxxx-------- 0.63 0.30
S&P/TSX 60 0.52 0.30 ----------------oooo------------xxxx------------------------------------------------ 0.89 0.45
Europe/Africa/Middle East
Euro Stoxx 50 0.61 0.46 ----------------------------xxxx----oooo-------------------------------------------- 0.85 0.63
FTSE 100 0.57 0.21 ----------------------------oooo--------------------------------xxxx---------------- 0.66 0.38
CAC 40 0.65 0.39 ------------------------------------oooo------------xxxx---------------------------- 0.78 0.59
DAX 0.68 0.44 ------------------------------------oooo----xxxx------------------------------------ 0.86 0.64
Swiss Market 0.64 0.39 ----------------------------oooo----------------xxxx-------------------------------- 0.81 0.57
Asia/Pacific Rim
Nikkei 225 0.58 0.19 ----------------------------oooo--------xxxx---------------------------------------- 0.97 0.50
Hang Seng 0.69 0.30 ------------------------oooo----------------------------xxxx------------------------ 0.85 0.50
S&P/ASX 200 0.59 0.47 ----------------xxxx----oooo-------------------------------------------------------- 0.96 0.60
Volatility: Skew overview
� Skew
� Skew is up since last week, close to the highest levels over the last 2 years on most indices.
Think about OTM puts to finance yielding structure.
16 February, 2016
Parameters
%Money: 90%/110%
Term: 3M
Range: 2Y
90% Strike 110% Strike
Underlying Implied Vol Implied Vol Spread Low Range High Average
North/Latin America xxxx Now oooo Avg
Dow Jones Industrial 27.73 15.86 11.87 7.03 ------------------------oooo------------------------xxxx---------------------------- 14.46 9.79
S&P 500 28.62 16.76 11.85 7.5 --------------------------------oooo--------------------xxxx------------------------ 13.81 10.31
Nasdaq 100 31.81 21.09 10.72 5.85 ------------------------------------oooo------------------------xxxx---------------- 12.09 8.89
Russel 2000 32.43 22.44 9.99 7.06 ------------------------oooo------------xxxx---------------------------------------- 13.20 9.35
S&P/TSX 60 30.77 19.69 11.08 3.8 ------------------------------------oooo------------------------xxxx---------------- 12.83 8.37
CBOE SPX Volatility 78.90 87.78 -8.87 -17.48 ----------------------------oooo----------------------------xxxx-------------------- -5.74 -12.96
Europe/Africa/Middle East
Euro Stoxx 50 34.53 26.04 8.49 1.87 ----------------------------------------------------oooo--------xxxx---------------- 10.27 7.58
FTSE 100 29.75 19.39 10.36 5.42 ------------------------------------oooo------------------------xxxx---------------- 11.41 8.50
CAC 40 34.04 25.43 8.61 4.88 ----------------------------------------oooo------------xxxx------------------------ 10.28 7.74
DAX 33.38 26.14 7.25 5.06 --------------------------------xxxx----oooo---------------------------------------- 9.80 7.45
Swiss Market 30.04 21.77 8.28 4.33 ----------------------------oooo--------------------xxxx---------------------------- 10.28 6.69
Asia/Pacific Rim
Nikkei 225 37.23 28.45 8.77 1.56 --------------------oooo----------------------------------------xxxx---------------- 10.59 4.36
Hang Seng 32.74 24.75 7.99 -2.72 --------------------------------oooo----------------------------xxxx---------------- 10.69 3.04
S&P/ASX 200 27.84 19.67 8.17 3.44 --------------------------------oooo------------xxxx-------------------------------- 11.64 6.99
Kospi 200 24.70 15.42 9.28 -2.12 --------------------------------oooo----------------------------xxxx---------------- 11.77 4.06
NSE CNX Nifty 24.19 16.92 7.27 -4.13 ------------------------------------------------oooo------------xxxx---------------- 10.29 4.99
3M 90% - 110% Spread
Volatility: Global overview
� Implied Volatility
� Volatilities are up again this week, almost at 2Y high levels. Airbag & other participation structures
will be way too expensive in this case. All investors willing to sell volatility via yielding structures will
benefit from very interesting market conditions.
16 February, 2016
Parameters
%Money: 100%
Term: 3M
Range: 2Y
Underlying Vol Low Range High Average
North/Latin America xxxx Now oooo Avg
Dow Jones Industrial 21.76 9.60 --------------------oooo----------------------------------------xxxx---------------- 24.96 13.91
S&P 500 22.78 10.17 --------------------oooo--------------------------------------------xxxx------------ 25.00 14.50
Nasdaq 100 26.35 12.01 ----------------oooo--------------------------------------------xxxx---------------- 29.77 16.78
Russel 2000 27.38 14.75 --------------------oooo------------------------------------------------xxxx-------- 28.61 18.87
S&P/TSX 60 24.91 9.23 --------------------oooo------------------------------------------------xxxx-------- 26.54 14.55
CBOE SPX Volatility 83.67 52.08 ----------------------------oooo------------------------xxxx------------------------ 96.49 69.46
Europe/Africa/Middle East
Euro Stoxx 50 29.90 12.87 ------------------------oooo------------------------------------------------xxxx---- 30.98 19.31
FTSE 100 24.26 9.10 --------------------oooo------------------------------------------------xxxx-------- 25.49 14.05
CAC 40 29.40 12.48 ------------------------oooo------------------------------------------------xxxx---- 30.49 18.67
DAX 29.46 12.13 ----------------------------oooo--------------------------------------------xxxx---- 30.53 19.30
Swiss Market 25.15 10.05 --------------------oooo----------------------------------------------------xxxx---- 25.92 14.52
Asia/Pacific Rim
Nikkei 225 32.28 14.42 ----------------oooo----------------------------------------xxxx-------------------- 37.79 20.75
Hang Seng 28.16 11.78 --------------------oooo----------------------------------------xxxx---------------- 32.39 18.03
S&P/ASX 200 22.56 9.61 --------------------oooo------------------------------------xxxx-------------------- 26.87 14.63
Kospi 200 19.29 10.18 ----------------oooo--------------------------------xxxx---------------------------- 24.06 13.72
NSE CNX Nifty 19.62 12.15 --------------------oooo------------xxxx-------------------------------------------- 27.99 17.01
Volatility: Global overview
� Volatility Curve for SX5E last week (SX5E index down 4.28% over the last week).
� 5Y IV around 24.1 compared to 22.8 last week (1Y lowest level : 18.6)
� 1Y IV around 26.2 compared to 23.7 last week (1Y lowest level : 18.0)
� 3m IV around 29.9 compared to 26.3 last week (1Y lowest level : 16.1)
� 1m IV around 33.7 compared to 28.3 last week (1Y lowest level : 14.5)
� Sharp increase in all volatilities last week. As the curve is inverted, explore opportunities to sell ST
volatility via yielding structures on indices or for the more courageous on global leaders via Daily
Range Accrual structures, decreasing autocallable structures and monthly autocallability.
16 February, 2016
10.42
39.35
12.87
30.98
15.61
26.71
17.55
24.19
10
15
20
25
30
35
40
ATM 1M IV ATM 3M IV
ATM 1Y IV ATM 5Y IV
Volatility: SP 500 analysis
� Volatility Curve for SP 500 last week (SP 500 index down 0.81% over the last week).
� 5Y IV around 23.4 compared to 22.8 last week (1Y lowest level : 18.4)
� 1Y IV around 22.0 compared to 20.7 last week (1Y lowest level : 15.0)
� 3m IV around 22.8 compared to 21.5 last week (1Y lowest level : 12.0)
� 1m IV around 22.8 compared to 21.6 last week (1Y lowest level : 9.8)
� Flat curve in the US. Same strategies as in Europe, i.e. benefit from the relative high ST volatility.
16 February, 2016
7.99
32.49
10.17
25.00
13.82
22.58
16.63
23.50
7
12
17
22
27
32
ATM 1M IV ATM 3M IV
ATM 1Y IV ATM 5Y IV
US Rates
16 February, 2016
The following graph shows the US Swap Yield Curve today (in green) and at the end of last year (in yellow).
It shows that long rates have gone down a lot and that the yield curve has flattened.
This rate environment makes it increasingly harder to create capital protected structures.
EU Rates
16 February, 2016
The difficulty is even greater in Europe where rates are negative until the 5Y maturity.
Product Ideas
16 February, 2016
3 Years USD Airbag linked to Gold
Currency USD
Maturity 3 Years
Payoff at Maturity 100% + 100% of the upside performance of the underlying
Protection 90% European Barrier (10% downside protection)
Ticker GOLDLNPM
The contango on Gold is currently
very low, making it attractive to create
participation structures.
Disclaimer
16 February, 2016
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