“Jaws” is turning 50. The horror film was first shown on the big screen on 20 June 1975. Steven Spielberg’s film about a panic in a US seaside resort sent shivers down the spines of people round the world and made cinema box offices ring with excitement – the production by Universal Pictures is regarded as the first blockbuster in film history. To this day, a dorsal fin protruding from the water makes the shark a symbol of fear and terror – regardless of its actual threat. It is because of a special payoff diagram rather than any possible threat that the fish lends its name to the “shark note”. Investors can now use the cover of this structured product to bet that sentiment on the US equity market will remain gloomy. After years of upward momentum, the rally on Wall Street hit the buffers in the first quarter of 2025, with both the broad-based S&P 500 Index and the tech barometer, the NASDAQ-100, trading below last year’s closing price.
The new issue from Leonteq is in principle a capital protection certificate, as the nominal of 1,000 US dollars is fully guaranteed at the end of the term. There is also a bearish participation. Essentially, this means that as soon as the S&P 500 and NASDAQ-100 lose value over the next twelve months, the structured product turns the losses into a positive return. The key here is the performance of the stronger underlying. In other words, both indices must be below their starting level in twelve months’ time for the reverse participation to kick in. In addition, there is a barrier of 85% of the respective initial fixing, which limits the earnings potential of the shark note. Since the product is structured with a European option, the prevailing threshold only comes into play on maturity. If both underlyings are trading at or below the barrier on that date, the participation mechanism switches off. Investors do not go away empty-handed in this scenario, though: a rebate of 10% of the denomination is paid out instead.
The shark note generates a positive return as soon as the stronger of the two US indices falls even marginally on a one-year view. The payoff diagram shows that the potential return is limited to just under 15% As soon as the barrier event occurs, the rebate is payable. It is not beyond the realms of possibility, of course, that Wall Street could shake off its recent torpor and spring back to life again. One possible trigger for a new rally could be a favourable outcome to the trade dispute, others a cut in interest rates or a strong earnings season. The US giants start presenting their results for the first quarter of 2025 in mid-April. Holders of the shark note will be on the safe side, as it were, if the bulls manage to stage a comeback, because the full capital protection kicks in if prices rise.
It should be noted that the functionality outlined only applies at the end of the term; until then, the price of the capital protection certificate will be affected by a range of factors. Alongside the performance of the two underlyings, these include their volatility and changes in interest rates in the US dollar zone. It is therefore perfectly possible that the shark note will trade at less than the capital protection level even though the direction of the underlyings reflects the bearish calculation. This does not change anything with regard to the central strength of this new issue, which is that investors have the opportunity to participate in a weak phase of Wall Street. To a certain extent, the product converts falling prices into a positive return. While the shark note lives up to its namesake in this respect, the risk of shock is greatly reduced thanks to capital protection.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.