UniCredit onemarkets has expanded its leverage products range with a new set of ‘cool-warrants’ linked to the Dax Index and other major German retail stocks included in the domestic benchmark. The new cool warrants are issued under the bank’s public offering programme in Germany, Austria and Luxembourg and are available for trading on the stock exchanges of Frankfurt and Stuttgart.
The German bank’s inline warrants range was introduced in the spring and has now been boosted with a new set of leverage warrants aimed at investors seeking higher returns by capitalising on market movements, according to Frank Weingarts (pictured), director and head of private investor products, Austria & Central and Eastern Europe, and expert on investment and leverage products at UniCredit onemarkets. “We have seen increasing demand from sophisticated investors for optimised leverage investments,” said Weingarts. “This is not a new payoff structure, but one that allows us to offer leverage exposure to the German equities market in a format that investors recognise.”
The existing range which comprised 300 leverage warrants has been boosted by the launch which includes 1,000 new cool warrants offering exposure to the main stocks in the Dax. “[The new warrants] cover a number of strike and barriers levels to provide choice to investors and offer different levels of risk and leverage,” said Weingarts.
‘Cool warrants’ belong to the category of exotic warrants with the acronym referring to the ‘chance of optimal leverage’. The products offer a blend of a classic ‘stay-high’ and ‘stay-low’ warrant, with the call option paying-out a minimum of 10 euros at the end of the term if the underlying asset has never fallen to or below the built-in barrier. The warrants comprise a barrier which is a call option below the strike price and a put on the strike price. If the barrier is breached, the possibility of a minimum return payment is eliminated, and the warrant turns into a traditional warrant with the chance to receive payment of the intrinsic value of the underlying asset at maturity and the risk of total loss.
“These products are suitable in particular for speculative investors who are looking for a high leverage,” said Weingarts. “As the warrant moves away from the threshold in the direction of the base price and gains value faster, the risk of the threshold being breached decreases, while increasing the chance of an intrinsic value. In addition, the barrier reduces the risk of any fair value loss compared to traditional warrants.”
Germany’s inline warrants market has seen increased activity in 2015 following the entrance of Commerzbank in the first quarter, although the turnover represents only around 1% of the turnover of overall warrants (excluding knockout warrants). These leverage investments are usually based on a range-digital payoff type and sit in the German leveraged market alongside knockout warrants and factor certificates, which dominate the exchange turnover by product category with 55.6% or approximately €3bn of the total turnover, according to the Deutscher Derivate Verbund’s October’s exchange turnover data.
Inline warrants on the German market have surged from 26,275 new products brought to market in March to 133,171 products year to date, of which over 45,000 are still live. Societe Generale with over 73,500 products is the most active provider, followed by Commerzbank (31,842 products), Unicredit (24,666 products), Deutsche Bank (3,011 products), and DZ Bank (67 products).
UniCredit Bank has a market share of 10.87% among the top 4 issuers in Germany, according to DDV statistics.
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