Leverage Products
Small capital, large exposure, short horizon.
Introduction
Leverage products are options and financed positions without a bond underneath. The whole capital is at risk, and because the premium or margin is a fraction of the underlying price, a small move in the underlying is a large move in the product. The chart shows values at expiry, or on a given date for open-ended products; before then, time value and financing costs sit on top.
Warrants are plain options with time value and volatility sensitivity. Knock-out warrants and mini-futures remove most of the time value by starting in the money and adding a barrier that ends the product if touched. Constant leverage certificates do something different again: they rebuild the exposure every day, so the result depends on the path.
These products are tools for a defined period and a monitored position. The market expectations in the workbook say "short investment horizon" and "monitor the position" for a reason.
The products
In workbook order. Each page has an interactive payoff chart and a construction visualiser.
- 2100RisingWarrant — Call
A leveraged bet on a rise: the right to buy the underlying at the strike.No capital protection Leverage - 2100FallingWarrant — Put
A leveraged bet on a fall: the right to sell the underlying at the strike.No capital protection Leverage - 2110Slightly risingSpread Warrant — Bull
A call warrant with its gains capped, which makes it cheaper and less sensitive to volatility.No capital protection Leverage - 2110FallingSpread Warrant — Bear
A put warrant with its gains capped at a floor level.No capital protection Leverage - 2200RisingWarrant with Knock-Out — Call
A call that is already in the money and dies if the underlying touches the knock-out level.No capital protection Leverage Barrier - 2200FallingWarrant with Knock-Out — Put
A put that is already in the money and dies if the underlying touches the knock-out level above it.No capital protection Leverage Barrier - 2210RisingMini-Future — Long
The underlying bought partly on credit from the issuer; a stop-loss closes the position before the credit is exhausted.No capital protection Leverage Barrier - 2210FallingMini-Future — Short
A short position in the underlying with the issuer holding the proceeds; a stop-loss above the price closes it.No capital protection Leverage Barrier - 2300RisingConstant Leverage Certificate — Long
A fixed multiple of the daily return of the underlying, reset every day.No capital protection Leverage - 2300FallingConstant Leverage Certificate — Short
A fixed negative multiple of the daily return of the underlying, reset every day.No capital protection Leverage