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Derivatives

Citigroup Creates Index For CPPI Structure

Citigroup has structured a note to give investors principal protected exposure to the highest yielding stocks in the Dow Jones Industrial Average.

Citigroup has structured a note to give investors principal protected exposure to the highest yielding stocks in the Dow Jones Industrial Average. The equity exposure comes from an index, termed the 2004-1 Income 10 Buy-Write Index, which tracks the performance of a hypothetical "buy-write" strategy wherein it buys the 10 stocks--excluding Citigroup--in the Dow Jones Industrial Average producing the highest annualized dividend yields and writes call options on these stocks on a quarterly basis, according to Jeffrey Karpf, partner at law firm Cleary, Gottlieb, Steen & Hamilton in New York, which worked with Citigroup on the structure.

This strategy is designed to allow investors upward participation in equity appreciation, capped by the strike prices of the call options, while also limiting downside exposure through premiums received when the options are written.

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