Trading Examples
Please select a trading example from the list below:
- Short Index Turbo - Scenario: the Knock-Out barrier is hit
- Long Index Turbo - Scenario: the Knock-Out barrier has not been hit during the lifetime of the Turbo
- Long Equity Turbo - Scenario: the Knock-Out barrier has not been hit during the lifetime of the Turbo
- Long Equity Turbo - Scenario: the Knock-Out barrier is hit
Case study 1 - Short Index Turbo
Scenario: the Knock-Out barrier is hit
Turbos on indices will expire worthless. There is no redemption value calculated. Remember: for Turbos on indices Strike = Knock-Out barrier.
- Investor's market view: Decrease in the FTSE 100 level.
- Current index level: 4,276.19
- Selected Turbo: FTSE100_5000_Short_19-Jun-2009_(T145)
- Knock-Out level: 5,000
- Amount to invest: £6,000
- Current Turbo price: £0.84
- Number of Turbos to buy: (£6,000 / £0.84) = 7,143 Turbos
The parity being 1000, buying 7,143 Turbos will give you an exposure to 7,143 FTSE 100 units.
Scenario following the purchase of Turbos
| Index | Turbo | |
|---|---|---|
| Underlying | FTSE 100 | FTSE 100 |
| Strike | - | 5,000 |
| KO Barrier | - | 5,000 |
| Parity | - | 1000 |
| Maturity | - | 6 months |
| Index level | 4,276.19 | £0.84 |
| Index level after 7 days | 5,023 | £0.00 |
On day 7 (T+7): Worst case scenario
- Index level: 5,023
- The knock-out level of 5,000 has been hit, the Turbo will expires worthless.
- The period of 30 minutes do not apply here as there is no redemption value calculated. Remember for Turbos on indices Strike = Knock-Out barrier
- The investor can not lose more than its initial investment.
For Turbos on Indices, SG quotes from the future, hence dividends and interest rates are already included in the pricing.
Case study 2 - Long Index Turbo
Scenario: the Knock-Out barrier has not been hit during the lifetime of the Turbo
- Investor's market view: Rise in the FTSE 100 level.
- Current index level: 4,208
- Selected Turbo: FTSE100_3800_Long_19-Jun-2009_(T141)
- Knock-Out level: 3,800
- Amount to invest: £5,000
- Current Turbo price: £0.4480
- Number of Turbos to buy: (£5,000 / £0.4480) = 11,160 Turbos
The parity being 1000, buying 11,160 Turbos will give you an exposure to 11.16 FTSE 100 unites.
Scenario following the purchase of Turbos
| Index | Turbo | |
|---|---|---|
| Underlying | FTSE 100 | FTSE 100 |
| Strike | - | 3,800 |
| KO Barrier | - | 3,800 |
| Parity | - | 1000 |
| Maturity | - | 6 months |
| Index level | 4,208 | £0.4480 |
| Index level after 1 months | 4,275 | £0.5150 |
| Performance | +1.59% | +14.96% |
After 1 month
- Index level: 4,275
- The knock-out level of £3,800 has not been hit.
- If you don't maintain your bullish market view, you simply sell back your Turbos in the market during trading hours (8.15 - 16.30), at: £5,747.40 = £0.5150 x 11,160
1 month after purchasing the Turbos, the index level of the FTSE 100 increase by 67 points the price of each Turbo will also increase approximately by £0.0670 (67/1000 = 0.0670, as parity is 1000), thus giving a much greater return in % as you purchase the Turbo at a fraction of the cost of the underlying asset.
Or you may want to keep your investment and monitor it very closely, if you believe the underlying will continue to increase.
For Turbos on Indices, SG quotes on the future, hence dividends and interest rates are already included in the pricing.
Case study 3 - Long Equity Turbo
Scenario: the Knock-Out barrier has not been hit during the lifetime of the Turbo
For Turbos on single stocks a redemption value is calculated (the day the Knock-Out barrier is hit) by taking the lowest price level of the underlying for long Turbos (highest price for shorts) during the 30 minutes following the knock-Out event.
- Investor's market view: Rise in the Vodafone share price over the next 5 days. You believe Vodafone won't fall to, or below £1.15 over the next 5 days.
- Current share price: £1.44
- Selected Turbo: VOD_£1.15_Long_27-Mar-2009_(C769)
- Knock-Out level: £1.15
- Amount to invest: £2,000
- Current Turbo price: £0.41
- Number of Turbos to buy: (£2,000 / £0.41) = 4,878 Turbos
The parity being 1, buying 4,878 Turbos will give you an exposure to 4,878 Vodafone shares.
Scenario following the purchase of Turbos
| Index | Turbo | |
|---|---|---|
| Underlying | VOD | VOD |
| Strike | - | £1.05 |
| KO Barrier | - | £1.15 |
| Parity | - | 1 |
| Maturity | - | 3 months |
| Price level | £1.44 | £0.41 |
| Price level after 2 days | £1.54 | £0.51 |
| Performance | +6.94% | +24.39% |
If two days after purchasing the Turbos, the share price of Vodafone increase by 10p the price of each Turbo will also increase by 10p, thus giving a much greater return in % as you purchase the Turbo at a fraction of the cost of the underlying share.
A Turbo is a geared instrument: its price magnifies the move of the underlying. In this example + 24.39% vs. +6.94%. The market price of the Turbo will move mainly according to the underlying spot price.
At this point in time (T+2):
- Share price: £1.54
- The knock-out level of £1.15 has not been hit.
- If you don't maintain your bullish market view, you simply sell back your Turbos in the market during trading hours (8.15 - 16.30), at: £2,487.78 = £0.51 x 4,878
- Or you may want to keep your investment and monitor it very closely, if you maintain your bullish view.
| Initial investment | Value of the investment after 2 days | |
|---|---|---|
| Turbos investment | (£0.41 x 4,878) = £2,000 | (£0.51 x 4,878) =£2,487.78 |
| Direct investment in VOD share | (£1.44 x 4,878) = £7,024.32 | (£1.54 x 4,878) = £7,512.12 |
Case study 4 - Long Equity Turbo
Scenario: the Knock-Out barrier is hit
- Investor's market view: Rise in the Anglo American PLC share price over the next 5 days.
- Current share price: £13.35
- Dividends*: £0.35
- Selected Turbo: AAL_£10.75_Long_30-Jan-2009_(C752)
- Knock-Out level: £10.75
- Amount to invest: £4,000
- Current Turbo price: £0.35
- Number of Turbos to buy: (£4,000 / £0.35) = 11,430 Turbos
The parity being 10, buying 11,430 Turbos will give you an exposure to 1,143 Anglo American PLC shares.
Scenario following the purchase of Turbos
| Share | Turbo | |
|---|---|---|
| Underlying | AAL | AAL |
| Strike | - | £10.00 |
| KO Barrier | - | £10.75 |
| Parity | - | 10 |
| Maturity | - | 3 months |
| Price level | £13.35 | £0.35 |
| Price level after 2 days (T+2) | £13.25 | £0.34 |
| Lowest price level in 30 minutes following KO event after 4 days (T+4) | £10.72 | £0.00 |
On day 2 (T+2):
- Share price: £13.25
- The knock-out level of £10.75 has not been hit.
- If you don't maintain your bullish market view, you simply sell back your Turbos at: £3,886.20 = £0.34 x 11,430
- Or you may want to keep your investment and monitor it very closely, if you believe the underlying will go up again.
| Initial investment | Value of the investment after 2 days | |
|---|---|---|
| Turbos investment | (£0.35 x 11,430) = £4,000 | (£0.34 x 11,430) = £3,886.20 |
| Direct investment in AAL share | (£13.35 x 1,143) = £15,260 | (£13.25 x 1,143) = £15,144.75 |
On day 4 (T+4): Worst case scenario
- Share price: £10.72
- The knock-out level of £10.75 has been hit, Turbo price is discontinued.
- 30 minutes later the redemption value is calculated,
- ((Lowest price level of underlying - Strike price) / Parity) - Dividends
- [(£10.72 - £10.00) / 10] - £0.35
- (- £0.278) £0
The investor can not lose more than its initial investment.
* Should an underlying stock pay a dividend during the lifetime of the turbo:
- the estimated value (by SG) of the coming dividends on the underlying are discounted from the price for a long turbo.
- the estimated value (by SG) of the coming dividends on the underlying are added (embedded) to the price for a short turbo.
- For Turbos on Indices, SG quotes on the future, hence dividends and interest rates are already included in the pricing.
