Fortis Bank has structured a reverse convertible note with a knock-in put referenced to Unilever. Koen Zoutenbier, senior account manager on the derivatives and structured products desk in Amsterdam, said the notes have a strike price of EUR55 and knock-in if the share price hits EUR40. Implied volatility on the put was 31%, when the trade was designed last month, compared with two-year historical vol of 25-26%.
In a reverse convertible an investor purchases a bond and at the same time sells an embedded put to the issuer to increase the coupon on the bond. Fortis sold the structure to private banking clients, Zoutenbier said, adding that the notional size of the trade was more than EUR10 million (USD9.87 million).
The firm chose to reference the structure to Unilever because the stock has been artificially depressed by its exclusion from the Standard & Poor's 500 Index. The stock fell to EUR55 on July 19 after the re-weighting, down from a level of EUR66.90 on July 10.
