M
magpie
Member
What is the difference between a guaranteed equity product on the FTSE 100 index and buying a call option on the FTSE 100 index with strike price being the index current value.
Thanks.
Thanks.
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cjno1
Member
I think the difference is in the outlay and the return at maturity.
Under a guaranteed equity product, you will give over a large amount of capital at the start (for example £100,000), and then your return at the end would be (for example) your capital increased with the FTSE if it went up, or the return of your capital otherwise.
With a call option, you only pay a small premium for the option of "buying" the FTSE (maybe £3), and the return at the end will only be the difference between the strike and the FTSE if the FTSE went up, or 0 otherwise.
Also the guaranteed equity product might not just give the return on the FTSE 100, it might give 80% of it, or 90%, or some other function of the return. The call option will pretty much always pay off on the absolute value of the index.
I'm sure there are other differences too, like different transaction costs, etc.
Under a guaranteed equity product, you will give over a large amount of capital at the start (for example £100,000), and then your return at the end would be (for example) your capital increased with the FTSE if it went up, or the return of your capital otherwise.
With a call option, you only pay a small premium for the option of "buying" the FTSE (maybe £3), and the return at the end will only be the difference between the strike and the FTSE if the FTSE went up, or 0 otherwise.
Also the guaranteed equity product might not just give the return on the FTSE 100, it might give 80% of it, or 90%, or some other function of the return. The call option will pretty much always pay off on the absolute value of the index.
I'm sure there are other differences too, like different transaction costs, etc.
M
magpie
Member
Thank you so much.
This helps.
This helps.
Yup
Looks like a good explanation to me.
Looks like a good explanation to me.