BNP Paribas announces the first issuance on the SeDex of Spread Call and Put certificates to invest in the main European (Italian Ftse Mib and German Dax) and American (S&P 500 and Nasdaq) stock exchanges. This issue represents a novelty in the Italian panorama of certificates, while they are already known on the German and French markets under the name of “Discount Warrants”: in fact they represent a cheaper variant of the Covered Warrants.
The benefits of Spread Certificates
Compared to traditional Covered Warrants, Spread Certificates they have a limit on the potential earnings (Cap for Call Spreads and Floor for Put Spreads) but allow for greater exposure to the underlying index for the same capital employed. In fact, their price, all other conditions being equal, is lower than a Covered Warrant with the same Strike.
This mechanism can help both the trader and you want amplify your investments by taking advantage of financial leverageboth those who believe that the underlying can remain within a range, and, in the Put Spread version, those who want to partially protect their portfolio from negative changes in the underlying index at a low cost.
Comparing Spread Certificates to Options Strategies, the former have one advantage very simplified operational management: in fact, it is sufficient to purchase a single ISIN code through the same securities account normally used for equity, bond or ETF investments. Instead, a similar strategy in options requires the opening of a derivative account, the payment of an initial margin, the opening of two positions and the choice of an intermediary that allows the compensation of the margins.
How do they work
As regards the functioning of the instruments, the new series of Certificates is characterized by two fixed thresholds predetermined by BNP Paribas at the time of listing the product: the CALL Spreads have a higher level, also called Cap, and a lower one, also called Strike; PUT Spreads, on the other hand, have a higher level, called Strike, and a lower one, called Floor.
The Call Spread Certificate pays an amount equal to the Maturity difference between Cap and Strike divided by Parity multiplied by the exchange rate, in the event that the listed value of the underlying is greater than or equal to the Cap. If the value of the underlying is less than the Cap, but greater than the Strike, the amount paid at Maturity will be equal to the difference between the value of the underlying and the Strike, divided for parity and the exchange rate; in the event that the quotation value is lower than the Strike, the certificate corresponds to a value equal to zero, with consequent total loss of the invested capital.
The Put Spread Certificate in turn corresponds to the Maturity an amount equal to difference between Strike and Floor divided by Parity multiplied by the exchange rate, in the event that the listed value of the underlying is lower than or equal to the Floor, in the event that it is higher than the fixed Floor value, but equal to or lower than the Strike level, the Certificate will repay a value equal to the difference between the Strike and price of the underlying, divided by parity multiplied by the exchange rate; in the event that the quotation value is higher than the Strike, the certificate corresponds to a value equal to zero, with consequent total loss of the invested capital.
“We are proud to have listed the first range of Spread Certificates in Italy on the main European and American indices, which allow you to benefit from both bullish and bearish markets and to take advantage of even the smallest movements of the underlying indices. Spread Certificates further expand the range of products that can be used by investors also with a view to hedging portfolios, without the complication of having to operate with derivatives” commented Nevia Gregorini, Head of Exchange Traded Solutions at BNP Paribas Corporate & Institutional Banking.
Furthermore, on the dedicated website it is always possible to consult quotations and graphs in real time.
Click here for all the documentation relating to Spread Certificates.