Dual directional plan on FTSE 100 provides two routes to profit

Meteor's six-year plan pays a return whether the FTSE 100 rises or falls. Capital is at risk only if the index falls below 50% of its initial level

Meteor plan looks both ways

Meteor has launched the Bull and Bear Growth Plan, a dual directional six-year growth product linked to the performance of the FTSE 100 Index. Investors receive returns via a participation rate of 125% in any rise or fall in the index, subject to barrier conditions. Capital is at risk if the index finishes below 50% of its initial level, but there is no cap on upside returns.

The existence of the barrier means the maximum return investors can receive from any downside movement is 62.5% plus initial capital, which would be achieved if the index finishes at 50% of its initial level. The likelihood of the maximum downside return being paid at maturity is small, as it depends on the index not dropping below the barrier.

If the final index level is equal to or higher than the barrier, investors will receive the full return of capital plus any additional returns. If the final level breaches the 50% barrier, the amount of capital returned to investors will be reduced by 1% for each percentage fall in the index from its initial level.

It is worth noting that rather than being a barrier which places investors' capital at risk if it is breached at any time during the product term, this is a final day barrier that applies solely to the final index level.

The product is clearly aimed at investors who believe there will be moderate to strong index movements in either direction and are willing to accept some risk to capital. Any gains made on the downside may help offset losses in other FTSE 100 investments or similar equity funds.

 

Pricing and risk

The product is based on a straddle strategy and returns depend on the market moving reasonably firmly in either direction. In order to offer good participation rates, it is necessary to build a barrier condition into the product, which places capital at risk if it is breached at maturity. The product will outperform a direct investment (excluding dividends) in the asset if the price of the underlying falls or rises but the barrier is not breached.

The product consists of a zero-coupon bond designed to repay capital at maturity and a series of put and call options which define the payout and potential returns. On the upside is a call option with a strike of 100% and gearing of 125%. The downside consists of a put spread with strikes at 100% and 50% and gearing of 125%. There is also a knock-in European put option with a strike of 50% and gearing of -100% that will be activated if the barrier is breached at maturity.

There is no cap on upside performance, so there is a greater chance of returns resulting from index growth than index declines. Although returns will be achieved if the index falls from its initial value, as it falls the chances of a barrier breach occurring will increase. 

Performance statistics and riskmap charts

 

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