Fortis Bank is writing equity call options on a basket of value stocks as part of the structuring of a guaranteed fund it will launch at the end of May. Koen Zoutenbier, senior account manager on the derivatives and structured products desk in Amsterdam, said the options will be six-year average-rate calls on a basket containing ABN AMRO, Vandex, Wereldhave, Société Générale, Volkswagen, DaimlerChrysler, KLM Royal Dutch Airlines,AXA, Dutch State Mines and Respsol YPF. Investors get a cash payout equal to the average closing price of the basket on the last day of the final 13 months. Zoutenbier said the exotic option is cheaper than a plain vanilla call, adding that defensive investors favor this strategy because it spreads the risk. He estimates the notional size of the option position will be approximately EUR25 million (USD22.5 million). Zero-coupon bonds provide the guarantee.
Six-year implied volatility on the basket was 25% on Tuesday and the dividend yield was 3.2%.
The guaranteed certificate, called value guaranteed certificate, guarantees investors the upside of the basket plus their capital. The investor wins if the value of the basket increases above EUR51.5. Each certificate is valued at EUR50, but is sold for EUR51.5, which includes a EUR1.5 transaction fee. The product is aimed at Dutch retail investors who had a bad last one-and-a-half years and want defensive exposure to the equity markets. The basket is mostly composed of Dutch stocks because potential investors will be more familiar with these companies. The subscription period runs from May 1 until May 31.
