Top 10: pharmaceuticals (includes profiles of Max India, Wuyi)
1 April, 2008In retirement, Australia can’t turn the tap off
1 April, 2008New product
Opes Prime Option Enhanced Protected Loan
What’s that?
It’s a strategy over a blue chip stock that’s designed to protect you from losses, give you a bit of potential appreciation and get the dividend.
How?
Take a blue chip stock. The idea of these structures is they pick a shortish period of time – a few months, perhaps – that includes the dividend entitlement date of that stock. Then, they make two options trades too: the purchase of a put option, which effectively puts a floor under the stock so as to minimise losses if it suddenly crashes; and the sale of a call option, which pays for the put option but also limits the upside if the stock goes through the roof (since, if you sell a call option, the holder of that option can get the stock off you once it hits a certain price).
Why?
The idea is you still get a bit of appreciation if it goes up, you can’t lose much because of the put, and either way you get the dividend. The duration of the trade is determined by the duration of the put option that’s put in place; once that expires, the trade expires.
Who’s offering these?
A group called Opes Prime, which among other things runs a structured products team newly launched under the leadership of Sean Taffe, who used to run the structured loans business at Merrill Lynch and then UBS.
How do they make their money?
Macquarie style: you fund the purchase of these securities through a protected loan. Opes Prime makes its money from the interest rate on the loan. That cost is likely to be moving around at the moment so call for an up to date quote.
