Merrill Lynch is gearing up to offer what is thought to be Asia's first warrants with embedded over-the-counter call options linked to the volatility of the Standard & Poor's 500. "It's a nice non-correlated bet," said John Robson, managing director and head of structured products in the global equity markets group in Hong Kong. He said Merrill is looking to close its first deal before year end and is considering introducing the product next year in Europe and the U.S.
Robson said volatility is at seven or eight year lows, with one-year levels around 17.9%. At the height of the dot-com boom in 1999, volatility on the S&P 500 was over 30%. He added that Asian equity volatility would likely increase even if the cash market falls.
Warrants sold to private banking clients would likely range around USD10-20,000 per volatility point with a two point premium incorporated. Robson continued that if for instance, the NASDAQ continues to surge or if another market-impacting event occurred next year, such as a terrorist attack, volatility would certainly pick up from the current subdued levels. "We're still not in a non-volatile world," he added.
