Glossary

Bid/Ask prices

Each Turbo shows a Bid and an Ask price. The Ask price is the price that the investor will pay to hold the Turbo and the Bid price is the price that SG will buy back the Turbo if the investor decides to sell back its Turbo. The difference between the Ask price and the Bid price is called the bid-ask spread (see Spread definition).

Cash settlement

All SG Turbos are cash settled on expiry, which means you never actually buy or sell the underlying when investing in respectively a long or a short Turbo. Cash changes hands but never shares.

Days to expiry

The time left before the turbo expires. Turbos are available with different maturities.

Delta

The Delta measures the sensitivity of the Turbo price to a change in the price of the underlying asset.

For long Turbos, a delta of 98% means that if the price of the underlying asset increases by + £1.00, the price of the covered warrant increases + £0.98.

Conversely for short Turbos, a rise in the underlying asset will bring a drop in the price.

Dividends

For long Turbos on Shares, the estimated value (by SG) of the coming dividends on the underlying are discounted from the price of the Turbo.
For short Turbos on Shares, the estimated value (by SG) of the coming dividends on the underlying are added (embedded) to the price of the Turbo.
For Turbos on Indices, SG quotes on the future, hence dividends and interest rates are already included in the pricing.

Financing fees

The value of a long Turbo on Equities is subject to a financing fee.
This fee reflects the economic effect of purchasing the underlying on the market to hedge the position. The fee is calculated as interest on the value of the shares represented by Turbo charged at a rate of 3 months LIBOR + 2% and which is imbedded in the value of the Turbos.
For short Turbos on Equities no financing fees apply.
For long and short Turbos on Indices no financing fees apply.

The financing fees are only a very minor element in the price of a Turbo which depends mainly on its intrinsic value.

Gap risk

The price of the Turbo takes into account the gap risk. This is a break-above or break-below a certain level.

Almost everyday and for many indices and shares, the closing level of a certain underlying on day 1 is not going to be the opening level of the Index on day 2. This usually occurs due to news announcements when markets are closed. The risk of seeing the underlying breaking above or below the strike or knock-out level is called a gap risk and is incorporated into the price of the Turbo from the start (Remember for Indices Turbos, Strike = KO barrier).

Gearing

A variation of 1 penny in the underlying represents a movement of 1p in the price of the Turbo for a parity of 1 (see Parity definition).
If a share price increases by 75p the price of the Turbo will also increase by 75p, thus giving a much greater return in % terms as you purchase the Turbo at a fraction of the cost of the underlying.
The gearing can be easily calculated and used to show how your product can evolve. You now have the ability to monitor your investment at any time, with all the necessary information is available on this website.

Knock-Out Barrier (KO)

The in-built barrier (KO barrier) will limit the downside risk to your initial investment. This barrier is the underlying level for which the Long or Short Turbo will be deactivated, should the market go against your view. The level is pre-determined at the issue of the Turbo.

For example, take the FTSE100_3,800_Long_19-June-2009 (T141) – This gives you an exposure to the FTSE 100. The index is currently trading 4,306.96 (as of 29/12/08) and you anticipate a rise before 19th June 2009. Therefore you consider buying a Long Turbo. The KO barrier will help you to observe your Turbo and avoid the worst case scenario, should the index fall to 3,800 and hit this barrier anytime before the expiry (The Turbo will terminate and will expire early).
SG also offers a range of FTSE100 Long Turbos with KO barriers between 4,000 (a profile with less potential loss but greater risk of early expiry – KO closer to the index level) and 3,000 (a profile with greater potential loss but less risk of early expiry – further away from the index level) for the same maturity date.

For Turbos on indices, KO = Strike
For Turbos on shares, KO ≠ Strike

The illustrations below simply show where the KO level is located compare to the underlying price evolution, for both Long and Short Turbo.
If the underlying is going in the opposite direction of your initial view, the KO barrier can be hit. Your Turbo will be deactivated.

Liquidity

A security is said to be liquid when investors can easily buy and sell the security, as a result of continuous two-way quotes from persons willing to buy and sell in quantity.
The liquidity is ensured by SG, who provides tight bid-ask spreads throughout the trading day from 8.15 am to 4.30 pm, Monday to Friday.

Long Turbo = Play the Upside

You anticipate a rise in the underlying price and wish to take advantage of the easy gearing via a Long Turbo.

Maturity (Expiry)

Each Turbo has a certain life time within which it is permanently listed on the LSE (except if it knocks-out prematurely). You can trade these products up to the maturity date, at which they will be cash-settled automatically.
Turbos are Short or Medium term investment products, from few days to 6 months.

Maximum loss

The maximum loss you can incur on Turbos is known in advance and is always strictly limited to your initial investment. Besides if you think the underlying is going in the opposite direction of your initial view, you can always sell back your Turbo earlier and still acquire a small gain.

Parity

Parity defines the number of Turbos you have to own in order to be exposed to one unit of the underlying. It tends to be 1 Turbo for 1 share or 10 Turbos for 1 share. Turbos on indices have a parity of 1,000 Turbos for 1 index.

Note, however that the minimun trading size is 1 Turbo.

Should you wish to invest into 1 Turbo on an index with a parity of 1,000, you would be exposed to one thousand of the index.

Premium

The premium is the price you need to pay in order to buy a Turbo. SG offers constant Bid/Ask prices which enable you to readily trade these products.

Redemption value

The calculation is very simple and straightforward, it is the difference between the underlying price and the Strike price.
The price of a Turbo on shares also may be affected by two minor elements, the dividends of the underlying and the financing fees for a Long Turbo (see Financing fees definition).

* In case the knock-out barrier has been hit, the investor can receive a redemption value which is calculated by taking the lowest level of the underlying price for Long Turbos (highest for Short Turbos) during the 30 minutes following the knock-out being breached.

Important:
For Turbos on indices, the period of 30 minutes does not apply here as Strike = Knock-Out barrier.
Indices traded are Total Return i.e. already including dividends.

Short Turbo = Play the downside

You anticipate a decrease in the underlying price and wish to take advantage of the easy gearing via a Short Turbo.

Spread

There’s always a spread between the buy (Ask) and sell (Bid) price for the turbo. As with shares, you will always buy at the higher price (Ask price) and sell at the lower price (Bid price). Usually the spread is not much more than half a penny per turbo. SG provides tight bid-ask spreads throughout the trading day to ensure the liquidity.

Strike price

It is the reference level for the Underlying from which the Turbo is evaluated. The level is pre-determined at the issue of the Turbo, such as the KO barrier. Thanks to this level you can enjoy a high gearing (see Gearing definition).

Underlying

The Turbo derives its value from the value of an underlying asset, this can be a stock or an index. You are buying exposure to.