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Autocallable Structured Products

Category — Structured Products
Autocallable Structured Product is a popular structured product that usually pays high coupon payments, the underlying asset is a basket of stocks / indices / individual stocks. This tool includes the issuer’s right to withdraw on certain dates on which an auto-call is triggered if the price of the underlying asset rises above the strike price - the frequency of installing auto-calls is usually from a month to six months.

These structured products in most cases have similar characteristics:

• a high coupon is paid if an automatic call option is triggered when the underlying asset price is higher than the strike price. If the auto-call fails, then the coupon value usually increases to the nearest multiple until the next auto-call date.

• usually a put option is embedded, which has a certain trigger-level, tied to a fixed price - the knockdown level of the underlying asset. If the price of the underlying asset falls below the knockdown level, then the put is triggered, this is called soft capital protection.

Here is an example of the instrument’s operation: the instrument has a duration period of 3 years, the strike price of the underlying asset is set at 100%, the coupon will grow from 10% to 20% and 30% in the next 2 years if the auto-call does not work. In this case, the level of put-knockdown is set at 70%. In this case, if the price of the underlying asset "goes" below 70%, then put is triggered, this is called soft capital protection.

Most often, this product is purchased by investors looking for long-term investments with higher coupon payments, pegged to stocks with 100% capital protection at maturity. Buying this instrument, the investor usually believes that the underlying asset will grow moderately and will not fall below the knockdown level. Another advantage of this instrument is its shorter period compared to other structured products, which means that the investor can count on the reinvesting the received income.
Terms from the same category