As a tax practitioner, the one type of structured note that I've seen one of my clients with was completely different than the ones you describe, and basically the opposite. It was a bond that played a much higher than market rate, but it had a trigger that if a certain stock was below a certain price at the end of the term, the investor did not get their investment back. It was offered by Credit Suisse I think. The income from the bond portion was reported in his investment portfolio tax document as "other income" as opposed to one of the standard interest or dividend categories. For some reason he included with his tax material the paperwork describing the note.
@@LDacic search for yield enhancement structured products. most big investment banks structure and sell these through external/internal distribution networks they're usually a combination of zero coupon bonds + some option / derivative component like the one that Steven described, it's a combination of long zcb + short down&in put
That is the kind of structured product I first encountered: 5-year term, high yield (500 bp above normal bank borrowing rates), with options tied to one or more stock indexes such that if the underlyings drop below a certain level ('threshhold") from the original issue date of the structured product, the investor loses a corresponding portion of their investment principal. Interest is "contingent" and paid only so long as the underlyings are above the threshhold value(s). Works for the investor if and only if the underlyings stay within the original issue date values and the threshhold.
About to start a new job in Exotics and Structured products, this video was very helpful for building a foundational understanding - many thanks Boyle!
Very good beginner information on SP. You bring up an interesting point. “Why should I, as a portfolio manager buy a structured product instead of buying these components separately?” When you look at something as simple as a ZCB + call option, indeed it’s difficult to see value added by a bank writing these components. However, what if we add a digital coupon call on a basket of worst of, a short put to finance this optionality and an early redemption feature on this packaged product that will redeem your principe + coupon before maturity? Indeed it’s a very precise strategy for a specific purpose, for a specific investor. But the question is, do you have the time and infrastructure to buy and hedge these components separately? Do you have the means to monitor the overall MtM for such strategies for a single thematic? How about ten? Hundred? In many ways you answered your own question. This is a very bespoke business, and in any industry, bespoke demands a premium. Edit: there is still value in capital protection products. Do you have the means to source a bond that would provide similar / better financing? How about the universe of stocks that you regularly deal with, is it as extensive as you want it to be? Even with capital protection products there are infinite combinations.
This assumes that going through all of those hoops increases the value of the investment which it doesn’t for most people stocks and bonds are enough and for the very few when it doesn’t they are better of not paying the fees
@@luisandrade2254 what about a brokerage? Do you think they don’t bring any value either just because they force the end investor to go though a bunch of “hoops”? Crossing one financial instrument between multiple custodies?No my friend. I humbly disagree. Only the market can dictate what does or doesn’t have value.
@@antonmsk3401 a broker facilitates trading which has value but these structured products (at least from this video) are just packaged complicated financial products with high fees I genuinely don’t see the value even if they could have extremely high returns which they don’t it would all be eaten by fees
This is nuts! Talk to someone who owned these during COVID and during 2022….They not only didn’t lose money but made money. These products can protect on the downside and pay big gains if the market is flat or positive….so offer Principal Protection and FDIC Insurance and some offer a payout in a down market. People who buy these laugh at those that accept market risk and panic at every downturn.
It is a bit crazy. Often the most complex products are sold to the least sophisticated investors. You should read the book FIASCO by Frank Partnoy, it tells you how crazy that industry was in the 1990's
Does your book Trading and Pricing Financial Derivatives include how to build a derivatives pricing model in Excel using the Black Scholes Merton formulae?
they sound like so much smoke & mirrors to hide high management fees and still leave the investor holding the majority of the risk. I doubt I'll ever meet someone who tells me "I got rich investing in structured notes."
Floating heads give the best info
Im glad you found it helpful.
You look very heavenly and divine here.
LOLOLOL
He says, "thanks Mom"!
your content is absolutely amazing, really appreciate all your thorough explanations
I appreciate that!
Most comprehensive explanation in YT so far. Thanks!
Glad it was helpful!
As a tax practitioner, the one type of structured note that I've seen one of my clients with was completely different than the ones you describe, and basically the opposite. It was a bond that played a much higher than market rate, but it had a trigger that if a certain stock was below a certain price at the end of the term, the investor did not get their investment back. It was offered by Credit Suisse I think. The income from the bond portion was reported in his investment portfolio tax document as "other income" as opposed to one of the standard interest or dividend categories. For some reason he included with his tax material the paperwork describing the note.
Would you know / be willing to share the name of the product?
@@LDacic It was years ago at this point, I have no idea.
@@LDacic search for yield enhancement structured products.
most big investment banks structure and sell these through external/internal distribution networks
they're usually a combination of zero coupon bonds + some option / derivative component
like the one that Steven described, it's a combination of long zcb + short down&in put
That is the kind of structured product I first encountered: 5-year term, high yield (500 bp above normal bank borrowing rates), with options tied to one or more stock indexes such that if the underlyings drop below a certain level ('threshhold") from the original issue date of the structured product, the investor loses a corresponding portion of their investment principal. Interest is "contingent" and paid only so long as the underlyings are above the threshhold value(s). Works for the investor if and only if the underlyings stay within the original issue date values and the threshhold.
helped me get a job in structured finance thank you!
About to start a new job in Exotics and Structured products, this video was very helpful for building a foundational understanding - many thanks Boyle!
Simple to understand. Very good explanation Sir! Looking forward to more content
Looks like a religious video 😂
Great Video, thank you so much for publish this kind of information
Glad it was helpful!
@@PBoyle Thanks a lot, your channel is extremely instructive
Very good beginner information on SP. You bring up an interesting point. “Why should I, as a portfolio manager buy a structured product instead of buying these components separately?”
When you look at something as simple as a ZCB + call option, indeed it’s difficult to see value added by a bank writing these components. However, what if we add a digital coupon call on a basket of worst of, a short put to finance this optionality and an early redemption feature on this packaged product that will redeem your principe + coupon before maturity? Indeed it’s a very precise strategy for a specific purpose, for a specific investor. But the question is, do you have the time and infrastructure to buy and hedge these components separately? Do you have the means to monitor the overall MtM for such strategies for a single thematic? How about ten? Hundred? In many ways you answered your own question. This is a very bespoke business, and in any industry, bespoke demands a premium.
Edit: there is still value in capital protection products. Do you have the means to source a bond that would provide similar / better financing? How about the universe of stocks that you regularly deal with, is it as extensive as you want it to be? Even with capital protection products there are infinite combinations.
This assumes that going through all of those hoops increases the value of the investment which it doesn’t for most people stocks and bonds are enough and for the very few when it doesn’t they are better of not paying the fees
@@luisandrade2254 what about a brokerage? Do you think they don’t bring any value either just because they force the end investor to go though a bunch of “hoops”? Crossing one financial instrument between multiple custodies?No my friend. I humbly disagree. Only the market can dictate what does or doesn’t have value.
@@antonmsk3401 a broker facilitates trading which has value but these structured products (at least from this video) are just packaged complicated financial products with high fees I genuinely don’t see the value even if they could have extremely high returns which they don’t it would all be eaten by fees
This is nuts! Talk to someone who owned these during COVID and during 2022….They not only didn’t lose money but made money. These products can protect on the downside and pay big gains if the market is flat or positive….so offer Principal Protection and FDIC Insurance and some offer a payout in a down market. People who buy these laugh at those that accept market risk and panic at every downturn.
Congratulations on your initiation 😂 🤫
He looks like a little financial angel, here to help us not screw up
I can just imagine the investors buying these products at their bank: "AAAAAND IT'S GONE"
It is a bit crazy. Often the most complex products are sold to the least sophisticated investors. You should read the book FIASCO by Frank Partnoy, it tells you how crazy that industry was in the 1990's
God himself with that lightening !!
Does your book Trading and Pricing Financial Derivatives include how to build a derivatives pricing model in Excel using the Black Scholes Merton formulae?
Seeing this in 2024.
Amazing video for beginner's explanations
Great explanation.. 👍
Thank you sir❤️🙏
Mr. Patrick, how do you explain the existence of Robinhood options traders? Do they read and sign ODD too?
Thanks
So structured products are nothing related to structured finance ?
structured products as he is speaking of have nothing to do with say structured lending, etc.
Anyone knows how I can buy the book from Singapore?
Patrick lost his left shoulder in nam..
Interesting…
they sound like so much smoke & mirrors to hide high management fees and still leave the investor holding the majority of the risk. I doubt I'll ever meet someone who tells me "I got rich investing in structured notes."