Market snapshot: making the most of volatility

The volatility around Research in Motion stock was high enough to ensure that a reverse convertible issued in the US linked to the stock offered to pay investors a near 30% annual return, writes Future Value Consultants’ Suzi Hampson


The highest coupon offered on a reverse convertible note in the US in March was the 27.27% annual return available on a UBS product linked to the common stock of Research In Motion. The size of the coupon was attributed to the high volatility of the underlying. When the volatility of an underlying asset is high there is a greater chance of hitting the protection barrier, which therefore requires a higher annual coupon to compensate for the higher potential for loss.

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