Equity derivative officials in Korea are anticipating an upswing in call-option-spread components in equity-linked notes, replacing the popular barrier-option plays that have been a huge business in the last few years.
"The strong won could hurt exporters and some investors feel that growth should slow this year," said a marketer at a bulge-bracket house in Seoul. He continued many clients last year purchased Kospi-linked notes with embedded barrier options that have knocked out, given the market was Asia's top performer finishing up over 50% on the year. Although clients expect this year the Korean market will continue to grow, it will be at a more measured pace, noted the marketer. Call-spread features, for instance going long a call with a strike 20% above spot and going short a call at 30%, are expected to replace barrier-option structures, given clients would likely shy away from barriers of 30% or higher as found in previous years. The typical maturity for such structures is six to 12 months.
