Trade of the month: reverse convertibles

Volatility makes reverse convertibles popular but beware the risk

For most investors and advisers, structured products are about risk control, which explains the appeal of capital-protected notes and super-tracker products. Reverse convertibles, by contrast, are an aggressive, high-yield product that includes significant risk to capital.

Most structured products involve the purchase of an option and a zero-coupon bond, which is how capital-protected products are created, for example. The investor maintains capital protection and gives up interest in return for