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Building blocks
Ten atoms. Every product on this site is a sum of some of them, with a quantity and a sign. Move the parameters and watch the shape; the same functions are used by the product pages.
Zero bond
payoff = face value
Pays its face value at maturity, whatever the underlying does. The floor under every capital-protected product and the budget for every option.
A zero bond is bought below its face value and repays the face value at maturity; there are no coupons in between. The purchase price is face ÷ (1 + r)^T, so the higher the interest rate and the longer the term, the cheaper the bond and the more money is left for options.
In the payoff diagram it is a horizontal line. Its only risk is the issuer: if the issuer cannot pay, the line is not where the chart says it is.
One for one with the underlying. A call with a strike of zero is worth exactly the underlying, which is how a certificate holds a share or an index.
The 45-degree line. Trackers, bonus and outperformance certificates all contain one. It carries the full downside, so any product built on it needs a put to create a floor.
The right to buy at the strike. Flat until the strike, then rising one for one. Bought for participation; sold to create a cap.
Buy a call and you own the upside above the strike without the downside below it. Sell a call and you receive a premium today in exchange for giving away that upside. Most caps on this site are a sold call: a capped capital protection note, a discount certificate and a bull spread warrant all contain one.
Before maturity the price of a call also contains time value, which is higher when volatility is higher. That is why rising implied volatility helps products that hold calls.
The right to sell at the strike. Falling one for one below the strike, flat above it. Bought for a floor; sold for a coupon.
A bought put is insurance: it pays the distance below the strike. A sold put is an insurance premium: the investor in a reverse convertible sells one and receives the coupon, accepting to buy the underlying at the strike if it falls.
Put–call parity links the two options: underlying + put = zero bond + call. That is why a discount certificate can be described either as underlying + short call or as zero bond + short put.
payoff = max(S − K, 0) if the barrier was never touched, else 0
A call that is cancelled if the underlying touches a barrier above the strike. Cheaper than a plain call, so it buys more participation per franc.
The knock-out call pays like a normal call as long as the underlying never reached the barrier during the term. Beyond the barrier at maturity the "never touched" scenario is impossible, so the chart shows the knocked-out value there. Used in capital protection certificates with barrier and, with a strike below the barrier, in knock-out warrants.
payoff = max(K − S, 0) if the barrier was never touched, else 0
A put that is cancelled if the underlying touches a barrier below the strike. Creates a conditional floor: the bonus level in a bonus certificate.
As long as the barrier holds, the put tops up anything below the strike to the strike. A touch of the barrier removes it. Because the option is cheap, a bonus certificate can offer a floor above the initial level without a bond.
payoff = max(K − S, 0) once the barrier has been touched, else 0
A put that only comes alive after the underlying has touched a barrier. Sold by the investor in every barrier reverse convertible.
Dormant until the barrier is touched, a plain put afterwards. The investor who sells it receives a smaller premium than for a plain put, which is why a barrier reverse convertible pays a lower coupon than a plain reverse convertible with the same strike, and why the buffer is only a buffer.
All or nothing: a fixed amount if the underlying is beyond the trigger at the fixing. The building block behind every conditional coupon.
A step in the payoff line. One digital per observation date turns a fixed coupon into a conditional one; a put version pays below the trigger instead of above it. Digitals are also the tool for rebates when a barrier is touched (one-touch options).
payoff = amount if the barrier was touched, else 0
A consolation payment when a barrier knocks an option out. A one-touch digital.
Rebates appear in capital protection certificates with barrier and in stop-loss versions of knock-out warrants, where they stand for the residual value. In the "never touched" scenario the chart still shows the rebate beyond the barrier, because the barrier must have been touched to get there.
payoff = premium if no credit event, else recovery − 100
Selling default protection on a reference entity: a premium in the good case, the loss on the bond in the bad case.
With a zero bond, a sold CDS makes a synthetic reference bond. The premium is paid as a higher coupon; after a credit event the investor absorbs the loss, receiving only the recovery value. The horizontal axis for this block is the recovery value, since the equity underlying plays no role.
Colour is never the only cue on this site. Each block has its own dash pattern and a direct label at the end of its line; short positions are drawn thinner and sit below zero.