Iccrea Banca has bought a one-year EUR1.4 million (USD1.3 million) knock-in put on shares of Mediaset to structure a reverse convertible linked to shares in the Italian television company. Banca di Credito Cooperativo bought the reverse convertible. Francesco Polimeni, head of derivatives trading at Iccrea Banca, said the put is struck at EUR14.14, the stock's closing price on Dec. 11, and knocks in at EUR11.31, or 80% of the strike level. The coupon is 10.20%. Polimeni said BCC asked Iccrea Banca to link the reverse convertible to Mediaset. This was probably because BCC wanted exposure to this company and with relatively high one-year volatility on shares in Mediaset, selling puts offered an attractive coupon, according to Polimeni. He added that it may have wanted exposure to the company now because its loans to Mediaset had expired.
A reverse convertible is the synthetic equivalent of an investor buying a bond and selling a put. The premium investors get from selling the put is used to beef up the coupon on the bond. The knock-in on the put gives the investor a comfort zone. If Mediaset's share price falls below EUR11.31 before maturity, the put knocks in, and Iccrea can choose at the note's maturity to give the reverse convertible holder cash or shares. Officials at BCC could not be reached for comment.
