Given the current economic environment of higher volatility and higher rates, I’ve been thinking of revisiting highly structured payoffs with a specific market view in mind. This would essentially mean building a note style payoff using Bonds and longer term options.
As an example given the current environment you can build a payoff with the following characteristics for a given lump sum invested in something like SPY:
\-Buffered Protection on the downside of about 20% before incurring losses. So SPY goes down 20% and the payoff incurs no losses.
\-Leveraged participation on the upside x2 the market return. So if the market went up 5% the payout of the structure would be 10%.
\-Capped max payout
I’m thinking of building something similar for the crypto market, more specifically, using COIN.
Would be great to get your thoughts on these types of payoffs, and on any other markets it might be worth considering.
You can read more on how these notes are put together here:
https://open.substack.com/pub/quantreturns/p/engineering-returns-building-a-structured
Disclaimer:
Quant Returns is a research and educational platform. Nothing presented here constitutes investment advice, a recommendation, or an offer to buy or sell any financial instrument. All examples are hypothetical and for illustrative purposes only. Please conduct your own research.
Highly specialised payoffs using options and a treasury bond
byu/QuantReturns inoptions
Posted by QuantReturns
1 Comment
Depends on the cost/risks of the product versus rolling my own