Derivate Switzerland

Glossary

On this page the most important terms related to structured products issued by Julius Baer are explained.

Actual Leverage (for Warrants)
Corresponds to the product of gearing and delta.
Agio (Price Differences)
Is the price difference between the market value and the par value of a product. The agio is typically expressed in percent. Opposite: Discount (Disagio).
Autocall
An autocall is a feature that is often used in structured products. With an autocall, the product is redeemed early upon certain market conditions being met (e.g. if the underlying security closes at or above a certain level at a defined time) and a fixed pre-defined return is paid out. Due to the reinvestment risk, an autocall offers better conditions relative to a classic product (e.g. in the form of a higher coupon or a lower barrier in the case of a barrier reverse convertible).
Backwardation
Describes a price situation for future contracts where long term contracts have a lower price than those with shorter maturities. By replacing expiring fututre contracts with longer term contracts a so called rolling profits may arise. The opposite scenario is called Contango.
Backtesting
Backtesting is the process of testing a possible behavior of a structured product during its lifetime on the basis of relevant historical data.
Barrier
The term barrier is a price level used in conjunction with barrier options. The payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price level.
Bear Market
The bear stands on the stock exchange as a symbol for declining prices over a longer period of time. The opposite is called bull market.
Bid-Ask Spread
The difference between the purchase price and the sale price. The size of the bid-ask spread depends on the liquidity of the underlying security and its underlying volatility. The quality of the market maker also has an impact on the spread that should not be underestimated. If insufficient attention is paid to market making, the spread can often be too wide, the volume too low, or bid and ask prices may not even materialise.
Bid price
A structured product can be sold at its current bid price. In the case of less liquid products, the bid and offer prices are provided by the market maker, with the bid price being below the ask price.
Bond
A bond is a fixed-income instrument and allows the issuer (government, company) to secure long-term debt financing. The debt is divided into parts and securitised. Buyers of a bond (bondholders) have a claim to repayment of the sum lent plus interest at an agreed rate.
Break-Even
The break-even level indicates by how much a warrant’s underlying security would need to increase for the investor to suffer a loss at maturity. As most investors do not hold warrants until maturity and instead want to sell them at a profit during their term, the break-even level is of lesser importance.
Call-Option
A call option is an agreement that gives an investor the right, to buy the underlying at a specified price within a specific time (european style) or within a specific time period (american style) or at specific days (Bermuda Option).
Cap
Structured products may have a cap. The cap limits the upside potential of the investor at the same time it enables to offer more attractive terms for products which benefit from sideways or slightly upwards moving markets.
Capital Protection Level
The capital protection level denotes the amount that is guaranteed for repayment upon expiry irrespective of price developments. It is also referred to as the ‘floor’.
Cash Settlement
A cash settlement is a settlement method used in certain structured products or warrants where the issuer does not deliver the actual underlying but instead transfers the resulting equivalent cash amount.
Cash-or-Nothing-Call-Option
A cash-or-nothing call option is considered a binary or digital option. If the underlying trades above the strike a predifined amount is paid otherwise nothing is paid.
Cash-or-Nothing-Put-Option
A cash-or-nothing call option is considered a binary or digital option. If the underlying trades below the strike a predifined amount is paid otherwise nothing is paid.
Chooser-Option
An option contract that allows the holder to decide whether it is a call or put prior to the expiration date. Chooser options usually have the same exercise price and expiration date regardless of what decision the holder ultimately makes
Clearing & Settlement
The task of clearing and settlement is to enable the settlement of trades. For structured products issued in Switzerland, SIX x-clear AG as the clearing agent and SIX SIS AG, Euroclear and Clearstream in Luxembourg as recognized settlement organizations.
Closing Price
The last price quoted for a security on a particular trading day.
Collateral
Collateral is a property or other asset that a borrower offers as a way for a lender to secure the loan.
Commodities
Basic goods used in commerce such as coffee beans, wheat, cacao beans, oil, etc which are interchangeable with other goods of the same type. Commodities might be traded at exchanges. In this case they must meet minimum standards. These are referred as "basic grades".
Composite
If the trading currency of a structured product does not correspond to the currency of the underlying, it is a composite product. The price of the product is based on the performance of the underlying and changes in the exchange rate. A possible hedge is implemented by the Quanto feature.
Compound-Option
Exotic option that has an option as the underlying.
Condor
In this option strategy, the investor benefits from sideways tending markets without. Similar to a butterfly spread, a condor is an options strategy that also has a bear and a bull spread, except that the strike prices on the short call and short put are different. The purpose of this option strategy is to earn limited profits, regardless of market movements, with a small amount of risk.
Contango
Contango is a situation where the futures price of a commodity is above the expected future spot price. If expiring contracts are rolled over into long-running contracts additional rollover costs may occur.
Correlation
Measures the relationship between two values. The correlation coefficient rho, which measures the level of correlation, varies between -1 and +1. A correlation of +1 means both of the observed factors move in the same direction at the same rate, while a correlation of -1 suggests that the two factors move in opposing directions at the same rate. A correlation of 0 indicates that there is no relationship between the values.
COSI
COSI stands for Collateral Secured Instruments and is a separate segment of structured products aiming to minimize the issuer risk. Collaterals are deposited on the SIX Swiss Exchange to secure the products on the basis of the market price and the fair value of a product.
Counterparty Risk
The risk that, for example, the bankruptcy (insolvency) of the counterparty could lead to losses.
Coupon
Is fixed and issued periodically when issuing fixed income securities.
Coupon at Risk
The coupon may not be paid upon occurrence of a particular scenario.
Covered Call Writing
A covered call is an options strategy whereby an investor holds a long position in the underlying and sells (writes)call options on that same underlying in an attempt to generate increased income.
Covered Option
Sale of call or put options. The seller must comply with the buyer’s decision whether to exercise the option.
Credit Default Swap (CDS)
A CDS is a derivative instrument designed to transfer the credit exposure of fixed income products between two or more parties with the aim to hedge the deault risk.
Credit Linked Note (CLN)
Is a product whose repayment depends on credit default in a predefined portfolio.
Credit Spread
Enables the assessment of the creditworthiness of a debtor. The credit spread is the additional risk premium paid by the borrower. Companies with poor credit ratings usually have a high credit spread.
Cross-Option
An option where the underlying and the payout are calculated in different currencies.
Currency Swap
Exchange of a series of interest payments on agreed capital sums in two different currencies over a specified period.
DAX
Abbreviation for German Stock Index. The DAX comprises 30 shares of German stock corporations
Day Trading
The day trader tries to profit from short-term fluctuations on the stock market. By definition, a day trader closes all trading positions every night.
Delta
The delta of an option specifies how much the value of the option will change when the underlying moves for one unit. In addition, the underlying ratio must also be taken into account if it is not 1. The delta for call options is a value between 0 and 1, for put options the value ranges between -1 and 0
Delta-Hedging
Delta hedging aims to reduce the risk associated with price movements in the underlying by offsetting long and short positions. For example, a long call position may be delta hedged by shorting the underlying stock.
Denomination
The denomination denotes a certificate’s smallest tradable nominal value.
Derivate
Derivatives are artificially created financial instruments whose value can be derived from the price of one or more underlying assets. A derivative is a contractual agreement between two parties. Warrants and structured products are among the securitized derivatives. As securities, they are more accessible to private investors than non-securitized derivatives such as futures or options.
Discount
The discount is equivalent to the price reduction compared to actual fair value price of an investment in the underlying.
Discretionary Strategies
In the case of discretionary strategies, constituents and allocations of the investment are rebalanced actively by the investment manager. The investment manager does this on the basis of current assessment of the market conditions.
Diversification
The distribution of assets on different investments with the aim of reducing the overall risk of the portfolio.
Down and In Call
Call option, which is activated only after touching or crossing a barrier.
Down and In Put
Put option, which is activated only after touching or crossing a barrier.
Down and Out Call
Call option, which immediately expires worthless after touching or crossing a barrier.
Down and Out Put
Put option, which immediately expires worthless after touching or crossing a barrier.
Duration
Indicator of the sensitivity of an interest rate change. The duration is the average maturity for which the capital is invested in a fixed-rate security. The duration of a zero bond corresponds to its maturity.
Dynamic Strategies
In contrast to static strategies, dynamic strategies change the composition or weighting of the underlyings. A distinction is made between rule-based and discretionary strategies. (See also discretionary strategies)
Emerging Markets
Term used to denote equity markets in emerging economies. These include, in particular, the equity markets in Latin America, Southeast Asia and Eastern Europe. Many of these markets are considered to offer significant growth potential, as these regions are posting or have posted much stronger economic growth than that generated by the major industrialised nations.
Equity-Linked Notes
This is the US term used to denote structured products on equities.
ETSF
Exchange-traded structured funds (ETSFs) are structured products in a fund format. From a legal point of view, an ETSF is a fund which incorporates options.
EUREX
EUREX is one of the world’s largest futures exchanges. It provides a trading platform for non-securitised derivatives such as options and futures. The exchange was created through the merger of SOFFEX (Swiss Options and Financial Futures) and Deutsche Terminbörse (Germany's futures exchange).
EURIBOR
EURIBOR stands for the European Interbank Offered Rate. See also LIBOR.
European Knock-In (Barrier)
With this kind of barrier, the performance of the underlying security during the term plays no role. Only the price at the time of final fixing counts. The European barrier is only deemed to have been breached if the price of the underlying security is at, or has fallen below, the barrier at this time.
European-Style Option
Unlike in the case of an American-style option, the exercise right of a European-style option can only be utilised at the end of the option’s term.
EUSIPA
The European Structured Investment Products Association is an umbrella organisation that brings together the most important derivatives associations. Thanks to the uniform classification system, the EUSIPA facilitates a higher level of transparency between the individual trading centres.
Euwax
Together with SIX Structured Products Exchange Ltd, the European Warrant Exchange (Euwax) is one of the largest trading centres for structured products in Europe. The trading platform is managed by the Stuttgart Stock Exchange.
Exchange-Traded Commodities (ETCs)
Exchange-traded commodities are tracker certificates on commodities that are traded on exchanges. Unlike in Switzerland, these products are securitised in Germany.
Exchange-Traded Funds (ETFs)
Investment funds that are traded like equities or structured products on the stock exchange. The most popular ETFs are based on indices and precious metals.
Exchange-Traded Notes (ETNs)
A term imported from abroad for passive investment products. A distinction is made between commodity ETNs (ETCs), emerging market ETNs, currency ETNs and strategy ETNs. The term is unfortunately used for different instruments, thus leading to confusion.
Exotic Options
Options with more complex payout structures than plain-vanilla options such as call options.
Fair Value
The fair value is the theoretical value of a structured product and is determined by the payout function on maturity. In addition to the underlying securities, possible dividend expectations, interest rates and implied volatility, as well as regulatory measures and the performance of corporate actions, are decisive for determination of the fair value.
Fair Value Gap
The fair value gap corresponds to the percentage difference between the current ask price and the actual price of the product.
Fill or Kill
A fill-or-kill stock market order is when the entire order is to be executed at a specific price. Should it only be possible to execute parts of the order, the entire order is cancelled.
Final Fixing
See Expiration
Financing Level
A financing level is used in the case of mini-futures. It determines the level of debt financing and thus also the value of the mini-future. Generally speaking, it is adjusted overnight with the accrued interest.
Financial Forward Contract
see Forward
FINMA
The Swiss Financial Market Supervisory Authority (FINMA) is endowed with sovereign authority to supervise banks, insurance companies, stock exchanges, securities traders and collective capital investments. Since 2009, it has united the three former regulators, namely the Federal Office of Private Insurance (FOPI), the Swiss Federal Banking Commission (SFBC) and the Anti-Money Laundering Control Authority (AMLCA), in a single authority.
Floor
The minimum amount that is paid out upon a product’s expiry irrespective of the price development of the underlying security.
Fund
see Investment Fund
Forward
A non-standardised, non-conditional forward contract between two contractual parties. Forwards are not traded on an exchange.
Funding
Funding refers to the provision of resources, usually in the form of money (financing).
Futures
Standardised forward contracts that are traded on futures exchanges such as the EUREX. Futures are a non-conditional type of forward transaction. Upon maturity, both parties, namely the buyer and the seller, are obligated to fulfil their part of the transaction.
Gamma
The gamma can also be referred to as the ‘delta of the delta’. It measures the absolute change in the delta upon the price of the underlying security changing by one unit. In mathematical terms, it is a second derivation of the option value based on the price of the underlying security.
Gearing
The gearing shows the ratio between the price of the underlying security and the price of the product.
Guarantee Certificate
The German equivalent of the category of capital protection products.
Greeks
Key figures which describe the sensitivity of an option's value to various parameters. The most important parameters include the price of the underlying security (delta, gamma), volatility (vega), interest (rho) and the residual term (theta).
Hedge Funds
A special kind of investment fund that uses alternative investment instruments or investment strategies, such as short selling and borrowing, in order to achieve higher returns.
Hedging
Hedging (protecting) a portfolio or a position against price fluctuations.
Historical Volatility
Volatility in the financial sector is a measure of how strongly a financial instrument fluctuates. Historical volatility indicates how strongly the price of a specific financial instrument has fluctuated in the past. Volatilities can be calculated for different time periods, often for time frames of 100 or 250 trading days.
Implied Volatility
Besides the price of the underlying security, implied volatility is the most important factor affecting an option’s value. Increasing implied volatility in the underlying security leads to increasing option prices, as the chances of a higher repayment at maturity increase, while the maximum loss for the buyer always remains limited to the invested capital.
In the Money
A call option is in the money if the price of the underlying security is significantly above the strike price. A put option is in the money if the price of the underlying security is significantly below the strike price.
In the Money
see In the Money
Index-Linked Notes
This is the US term used to denote structured products on indices.
Index Trackers
Index trackers belong to the tracker certificate product type and replicate the performance of an index on a one-to-one basis.
Initial Fixing
The point in time when the flexible elements are fixed. The flexible elements differ from issuer to issuer and product to product. The strike price (exercise price) and the barrier price are usually fixed at this time.
Institutional Investor
Capital market participants which, as institutions, manage funds and invest them in the financial markets in line with their business activities. Institutional investors include, for example, credit institutes, investment companies, insurance companies, pension funds and investment funds.
Intrinsic Value
An option’s price comprises two components: the time value and the intrinsic value. A call option’s intrinsic value is the difference between the underlying security’s current price and the strike price, multiplied by the multiplier (or divided by the ratio). An option only has an intrinsic value if it is in the money. Otherwise, its intrinsic value is zero. The intrinsic value is never negative.
ISIN Code
The ISIN code is the international form of the Swiss security number or the securities identification number in Germany. ISIN stands for International Securities Identification Number. It always contains a 12-character alpha-numerical code and a country identifier. The ISIN code for Swiss securities starts with ‘CH’ and for German securities with ‘DE’.
Issue
This term is used to denote the public offering of a security for admission to trading on a regulated market.
Issuer
The entity that issues a structured product.
Issuer Risk
Risk that arises based on the probability of the debtor (issuer) defaulting.
IUP (Intérêt Unique Prédominant)
A term from the area of fiscal legislation that is used to denote financial instruments for which the lion’s share of the return takes the form of a one-time payment (also primarily one-time interest bearing). Non-IUP instruments, on the other hand, do not predominantly have a single interest payment.
Knock-In
Former name for the barrier.
Knock-Out
The knock-out determines the price threshold at which the option components or even the entire product expires worthless.
Lead Order
Corresponds to the monetary sum placed in a structured product when it is issued.
Lead Manager
This is the name given to the bank(s) at the top of the issue consortium. The lead manager is responsible for the composition of the consortium, conditions and contract design, documentation, etc.
Leverage (Omega)
A measure for assessing the leverage of options and/or warrants. It indicates the percentage by which the price of a call (put) will increase (decrease) if the price of the underlying security rises by one percent.
Leverage
see Leverage
LIBOR
Abbreviation for London Interbank Offered Rate. This is a reference interest rate, which is set on a daily basis, at which banks on London’s interbank market lend money between one another. LIBOR also serves as a guide for internationally applicable interest rates for new issues and loans.
Limited Order
Limited orders are the most common type of order. Buyers (sellers) state the maximum (minimum) price that they would like to pay (receive). This provides protection against the risk of paying too high a price or receiving too low a price for a product. For limited orders, it is possible to set a deadline for how long the offer applies.
Liquidity
Liquidity is a measure of how easily a financial instrument can be traded. Issuers and market makers ensure liquidity by continually setting buying and selling prices.
Listing
Admission to official stock exchange trading granted by the registration authority.
Lock-In
Products with a lock-in allow for any profits to be held. If the lock-in level is reached, a repayment totalling at least the level of the lock-in is made on expiry irrespective of changes in the price of the underlying security.
Lookback
The barrier and/or strike are only fixed after a lookback phase.
Low Exercise Price Option (LEPO)
A LEPO is a call option with a strike price close to zero (e.g. 0.01). These options are primarily used for the construction of participation products.
Market Maker
The market maker is a market participant (bank or securities house) that sets binding prices. It works on its own account with reduced transaction costs. Its job is to set buying and selling prices and thus facilitate the trading of these products.
Market Capitalisation
Market or stock exchange capitalisation denotes the market value of a public limited company. Market capitalisation is calculated by multiplying the current stock market price by the total number of the company’s shares in circulation.
Market Risk
The risk of financial losses due to changes in market prices. In the case of structured products, this risk can be assessed with the help of the risk indicator of the Swiss Structured Product Association.
Maturity
The repayment from a certificate or a warrant is made on the maturity date. The repayment can be made as a cash payment in the form of a booking or via the actual delivery of the underlying security.
Maturity Date
The date on which a financial instrument matures.
Maximum Yield in %
The maximum yield denotes the maximum profit opportunities to be expected. This key figure is used for all certificates with a maximum yield.
Maximum Repayment
This key figure indicates the maximum possible repayment amount (on maturity).
MiFID
MiFID stands for the Markets in Financial Instruments Directive and serves as the European Union guideline for harmonisation of the European internal markets. MiFID aims to increase the transparency of the financial markets and thus improve the level of protection afforded to investors.
Mispricing
Mispricing refers to the incorrect valuation of products.
Moneyness
Moneyness is a key figure which describes an option’s situation. A distinction is made between out of the money, at the money and in the money.
Money Market
Unlike the capital market, the money market is the market for short-term financing (usually up to 12 months).
Monte Carlo Method
Numerical calculation method that is used, among other things, for structured products and options.
Nasdaq
The Nasdaq (National Association of Securities Dealer’s Automated Quotation System) is an electronic stock exchange in the US on which primarily shares of high-tech companies that are not listed on the NYSE (New York Stock Exchange) are traded.
Net Asset Value (NAV)
This corresponds to an investment fund’s net assets divided by the number of shares in circulation. It denotes the fair value of a fund unit and is generally calculated once a day.
New Issue
The issuing of securities. If a security is being floated on the stock market for the first time, this is referred to as a new issue.
Nominal Value
For bonds, the nominal value corresponds to the fixed amount stated on the security paper. The nominal value is therefore relevant for interest payments.
Non-IUP
see IUP
Omega
The omega represents the percentage change in an option's value with respect to the percentage change in the underlying price and measures the leverage of an options position. see also Leverage.
Option
An option confers the right to buy or sell a specified amount of an underlying security at a fixed price and at a specified time (European-style option) or during a certain period (American-style option).
Order Book
An (electronic) order book lists all buy and sell orders for a specific financial instrument. The orders are organised by price level and by the time of the order creation.
OTC (Over the Counter)
This abbreviation refers to trading conducted on an over-the-counter basis (outside an exchange). Transactions are agreed and executed individually between the two market participants.
Out of the Money
An Out-of-the-Money (OTM) call option has a strike level which is higher than the current market price of the underlying asset respectively a strike level which is below current market price n case of a put options.
Pari
Preis, der dem Nennwert (Nominal) eines Strukturierten Produkts entspricht.
Par Value
Price that corresponds to the nominal value of a structured product.
Participation
In the case of structured products, participation indicates the extent (as a percentage) to which the investor can profit from price movements in the underlying security.
Passive Investment Instruments
Passive investment instruments attempt to replicate the benchmark as precisely as possible in a cost-efficient manner.
Payment under Subscription
This refers to the payment of the investor for securities subscribed.
Payoff Diagram
A financial instrument’s payout structure with regard to the reflux of capital.
Performance
Performance indicates the change in a security’s value. The performance description usually refers to a specific period (e.g. one year) and is stated in percent.
Performance Index
Differs from the price index in that dividend payments are also included in its calculation. Dividend payments are reinvested in the index’s components on a pro rata basis.
Physical Delivery
Depending on the product’s structure, a physical delivery may be made at maturity, i.e. the underlying security is transferred to the investor’s custody account.
Plain Vanilla
In the area of structured products, the term ‘plain vanilla’ is regularly used to describe the standard version of a specific product type. Originally, the expression ‘plain vanilla options’ was only used for classic options. Today, however, it is also used for other product types (e.g. plain vanilla discounts for classic discount certificates).
Premium (Option Premium)
The premium refers to the price that the buyer of an option pays for the derived right and that the seller of the option receives in return. The level of the premium is based on various factors (e.g. the option’s term, the exercise price, the expected performance of the underlying security and its volatility).
Price Index
Only the pure price changes of the equities are incorporated in the calculation of the index. Unlike the performance index, dividend payments are not taken into account.
Pricing Sensitivity
see Greeks
Primary Market
The time between a product’s issue and payment for the securities subscribed.
Product Name
The product name is determined by the issuer. Generally speaking, products from the same issuer and with an equivalent payoff diagram have the same product name with the name of the underlying security as a suffix.
Product Type
The SSPA’s Swiss Derivative Map makes a distinction between product categories and product types. The product type is defined on the basis of the payoff diagram at maturity. Products with the same payoff diagram are assigned the same product type.
Proprietary Trading
Various financial institutions not only process orders for their clients, but also trade in their own name and for their own account. Proprietary trading is primarily performed in a financial institution's investment banking division.
Put-Call Parity
Put-call parity is an equilibrium relationship between the prices of a call and put of an otherwise identical option.
Quanto
Many underlying securities of structured products are denominated in foreign currencies on their home exchange (e.g. Japanese equities in JPY). As the value of such products at maturity is calculated in a foreign currency, the investor takes on an exchange-rate risk upon buying these products. In the case of structured products with an additional ‘quanto’, these products have a built-in currency hedge (using a quanto option) that protects the investor against exchange-rate fluctuations.
Quote
The continually provided bid and ask prices of the issuers for their structured products are referred to as quotes. A quote always comprises the symbol, the security number, a bid price including the associated volume and an ask price with the associated volume.
Rainbow Option
Based on several underlying securities. The most well-known types of rainbow option are ‘best of’ and ‘worst of’. These refer to the best/worst performing underlying security, respectively.
Rating
The classification of countries, banks and capital market securities based on their credit rating. Neutral rating agencies or the editorial boards of internationally renowned financial journals make the assessments using a classification system (e.g. AAA, AA, A, BBB). The issuer can also request that a rating be made. The world’s leading rating agencies include: Standard & Poor’s Corporation, Moody’s Investors Service, Keefe, Bruyette & Wood’s Inc. and International Banking Credit Analysis Ltd.
Ratio (Warrants)
The ratio (for warrants) expresses how many products are needed to purchase an underlying security. For example, if a warrant has a ratio of 100, this means that 100 warrants are required to purchase the underlying security at the strike price.
Redemption
see Repayment
Reference Price
see also Strike Price
Repayment
Depending on a product’s structure, a repayment is made after a certain period and at maturity at the latest. Products that can expire worthless are an exception (e.g. knock-out warrants).
Rho
Rho is one of the dynamic option coefficients and indicates how strongly the value of an option responds to changes in interest rates. As the changes in interest rates have a relatively small impact on option prices, rho is of lesser significance for the investor.
Risk Averse
Denotes a reluctance to take risks. The opposite of risk seeking.
Risk-Free Interest Rate
Return that can be generated without risk.
Risk Profile
All investors have an individual risk profile that is based on their financial situation, risk tolerance and investment horizon. A distinction is made between risk-averse, risk-neutral and risk-seeking investors.
Rule-Based Strategies
In the case of rule-based strategies, a possible switching of the product’s underlying securities takes place on a rule-based basis at predefined times or upon the occurrence of specific events (e.g. upon price thresholds defined at the start being exceeded).
Safety Buffer
Many structured products also allow for attractive returns if the price of the underlying security is falling, provided a defined barrier is not reached or fallen below. The current price difference between the underlying security and this barrier is referred to as the safety buffer.
Secondary Market
Trading time between a product’s payment and maturity.
Sensitivity
see Greeks
Short Position
If you sell a security that you do not yet own, you have a short position and have thus made a short sale.
Short Selling
Short selling is the practice of selling securities that do not belong to the seller. Such sales lead to short positions. When making a short sale, the seller anticipates falling prices and makes the transaction in the hope of being able to buy back the security further down the line at a lower price, thus generating a profit.
Sideways Yield
The sideways yield indicates the profit achieved if, at maturity, the underlying security is quoted at the same price as at the observation time.
SIX Structured Products Exchange Ltd
Exchange for structured products in Zurich.
Soft Call (Also Issuer Call)
The issuer has the option to call the product for early redemption. See also autocall.
Special Assets
Assets that are excluded from the bankruptcy estate. Fund units, for example, have the status of special assets and are thus not subject to issuer default risk.
Special Purpose Vehicle (SPV)
Special purpose vehicles are legal entities that are created for a clearly defined and limited purpose.
Spot Price
Denotes the price on the cash market.
Spread
see Bid-Ask Spread
Standard Deviation (Volatility)
Measure of a variable's dispersion around its mean. See also Volatility.
Stock Exchange Securities
A sub-group of securities which primarily refers to equities and bonds.
Stop-Loss Threshold
Mini-futures also have a stop-loss threshold. Should the price of the underlying security reach the stop-loss threshold during its term, the product immediately falls due. In most cases, the investor still receives a residual amount if the stop-loss threshold is breached.
Straddle
A pure option strategy which sees the investor benefit from changing prices. The straddle comprises a call option and a put option with the same strike price, same term and same underlying security.
Strangle
A pure option strategy which sees the investor benefit from significantly changing prices. In contrast to straddles, a strangle is made up of a call option and a put option with a different strike price.
Strike
Corresponds to the reference price. See also Strike Price.
Structured Product
A structured product is a combination of classic financial investments and derivatives that are securitised in a single instrument as an independent product and issued by an issuer.
Subprime
This term became well-known during the 2008/2009 financial crisis. It refers to third-class US mortgages with a high risk of default.
Subscription Period
The subscription period is the period during which investors can subscribe to new structured products in order to later obtain them at issue conditions.
Subtype
The subtype describes the product’s direction of participation. Call, bull and long are product subtypes which bank on rising markets, while put, bear and short are product subtypes that count on falling markets.
SSPA Category
The SSPA’s Swiss Derivative Map divides structured products into five categories. While capital protection products allow for protection on at least 90% of the nominal value, yield enhancement products have limited returns. Participation products have open upward participation, but also the possibility of a total loss. Leverage products make it possible to participate in both rising and falling prices on a leveraged basis. A distinction is made between leverage products with and without a knock-out.
Swap
Agreement between two contractual parties to exchange future cash flows at fixed times and with fixed conditions. The most well-known types of swap include interest and currency swaps.
Termsheet
The termsheet is a commonly used term for what is today referred as the Key Information Sheet. The Key Information Sheet is a legal document that specifies all terms and conditions associated to a specifric structured product or warrant. The issuing bank of a warrant or structured prodict is obliged to generate and deliver a termsheets to investors free of charge.
Theoretical Value
Calculated value of a warrant or options without taking into account premiums/extra charges or discounts.
Theta
Theta is a measure of the rate of decline in the value of an option due to the passage of time. It can also be referred to as the time decay on the value of an option. If everything is held constant, the option loses value as time moves closer to the maturity of the option. Theta is usually expressed in percent per week.
Time Value
A warrant’s price comprises two components: the time value and the intrinsic value. The time-value component of a warrant is not only influenced by the performance of the underlying security, but also by changes in other factors such as volatility, interest rates and dividend expectations.
Total-Return-Index
see performance index
Trading Currency
The trading currency denotes the currency in which the instrument is traded. The currency does not have to be the same as the currency of the underlying security or the currency of the strike price.
Trigger (Event)
Triggers are mainly found in express certificates. Like the barrier, the trigger is also a decisive price threshold. If the underlying price is at or above the trigger at an observation point, the premature repayment occurs automatically.
Turnover
The turnover, expressed in terms of currency units, shows how much capital was invested into a warrant or structured product (includes all purchases and sales).
Underlying
The underlying asset of a derivative. For warrants and structured products it is usually a stocks, an equity indices, a commodities, an interest rates or a currency.
Up and In Call
Call option, which is activated only after touching or exceeding a barrier.
Up and In Put
Put option, which is activated only after touching or exceeding a barrier.
Up and Out Call
Call option that expires after touching or exceeding a barrier worthless.
Up and Out Put
Put option that expires after touching or exceeding a barrier worthless.
Valor / WKN
The security number (securities identification number) is the number assigned to each security at the Swiss Exchange for identification purposes. The equivalent to the security number in Switzerland is the securities identification number (German: Wertpapierkennnummer WKN) in Germany.
Value at risk (VaR)
Value at Risk is a measure of the risk of investments. It estimates how much a set of investments might lose, given normal market conditions, in a set time period (eg 10 days) and a set probability (eg 95%).
Vega
Vega measures the change in the (vanilla) option value if the volatility changes by 1%. The Vega is always a non negative number.
Volatility
Volatility describes the intensity of the price fluctuations of a security. A distinction is made between historical and implied volatility.
Zero Bond
A zero-coupon bond, also known as an "accrual bond," is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.
Source: Bank Julius Baer & Co. AG, Swiss Structured Products Association