Equity Blue

As written in the previous articles, each and every investment certificate is assembled of individual components. Bonus certificates are not exceptional in this. By individual components we mean options, i.e. financial derivatives, which cater for different parameters of the particular certificate. They, for example, set the level of bonus, level of safety barrier, maturity, and potentially further characteristics. The total sum of the values of these components is setting the price of the bonus certificate. The same rules apply to bonus certificates as to any other investment instruments. The higher the yield of the certificate, the higher the risk associated with it. Therefore, keeping in mind the previous articles, the higher the bonus (yield) the certificate offers, the lesser is the safety pillow represented by the safety barrier, i.e. the difference between the actual price of the underlying asset and the given value of the safety barrier. The awareness of the above men...

In the recent article, that was meant to be an introduction to the topic of bonus certificates, I wrote about the principles and functionalities of these instruments. A bonus certificate is having at least three key parameters: maturity , bonus and the safety barrier . Nowadays, there are dozens of various bonus certificates that were issued with different underlying assets, different maturities, and differently set bonus and safety barriers levels. All these parameters must be taken into consideration when choosing the right certificate. The maturity of a certificate shall be quite clear. The maturity is defined by a given day, when the certificate gets redeemed, and the bonus gets paid out (if the price of the underlying asset did not fall on or below the level of safety barrier); or, in case the price of the underlying hit the safety barrier, then the value corresponding to the current price of the underlying is paid out. Therefore, the bonus represents the profit. However,...

Bonus certificates are undoubtedly very interesting investment instruments, which are appealing to many experienced investors. These instruments in their classical shape are enjoyed for their three main advantages: they provide a partial safety in case of falling market prices; they provide a chance to obtain a bonus in the maturity; and in case of a strong growth of the price of the underlying asset they even allow an unlimited participation on the profit. Many investors reached interesting yields thanks to the characteristics of bonus certificates. But it is as well necessary to mention that in case of deeply falling prices even these instruments can generate substantial losses. Nevertheless, if a potential investor realizes and understands the functionality of these instruments, and develops himself the ability to evaluate the parameters of the particular bonus certificate in connection with the price movements of the underlying asset, then the risk can be significantly reduced. T...