The Rise and Fall of Apple-linked Structured Products

CalibratedConfidence's picture

The Securities Litigation and Consulting Group just released a report which highlights the rise in Apple's stock price coinciding with the issuance of debt products linked to Apple's stock price.  Turns out these products have cost investors $80MN, or over 20%, since issuance.  The cabal responsible for issuance of the reverse covert's includes such White Knights of finance like UBS, Barclays, and the Morg. 

On the 23rd when expectations shanked, UBS's September 26, 2012 Apple-linked SO Reverse Convertible (8.03%, No Coup) was priced at $571.38 when Apple's stock traded at $514.01.  Apple's stock closed at $450.50 the next day, Jan 24, and the SO Reverse Convert was worth $468.93, a voluation at 66.92% of its face value.  For investors to win, Apple's stock has to close above $595.60 on Sept 23, 2013.

This is just one of the nearly 650 Apple-linked products tracked by SLCG.























Enjoy this gem.



The Rise and Fall of Apple Linked Structured Products by calibrateconfidence

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CheapBastard's picture
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Downtoolong's picture

debt products

AKA off market, off balance sheet derivatives. And now we see why someone (cough TBTF bank) might want to bang the close (manipulate the price) of AAPL stock to change the settlement and value of said derivative in their favor.

So, who says the banks aren’t doing any lending? They just aren’t lending to Main Street. Most of Ben’s new money is being lent to hedgies and stock market speculators via the same old invisible unregulated derivatives pathways who are playing a zero sum gambling game at the expense of everyone else. Most of them will eventually lose too, and a small handful of the swift, lucky, and already rich will emerge with all that new money in their pocket. That’s your Fed stimulated economy in a nutshell.

By the way, how’s that job search going.

ebworthen's picture

"Debt products linked to Apple's stock price"?

You have got to be kidding me.

The SEC may as well sponsor an online Texas Hold'Em gambling site.

We'll let the Treasury do the Roulette wheel.

Imagine how stimulative this will be; broadband gambling in every hamlet of the land sponsored by the government.

Are things any different now?

Not really.

Looney's picture

. "Issuers like UBS, Barclays and JP Morgan issue reverse convertibles..."

Every scam you read or hear about, JP Morgue-an is there. They never miss a chance to rip somebody off - be it a working stiff, a farmer, or a primary dealer (MF Global).

I can't wait to see a headline like "JP Morgan has ripped off... JP Morgan!" ;-)


DeadFred's picture

I can't wait to see "JP Morgan declares bancruptcy, board of directors all under arrest". If you're hopin', hope big.

Tijuana Donkey Show's picture

Uh, the London Whale? That was pretty close....

RhoneGSM's picture

the ytb (yield to broker) is awesome on reverse converts !!!


hairball48's picture

Blah Blah Blah....anyone tired of Apple and "iShit"?

Never One Roach's picture

Lehman "MiniBonds" anyone ?


Financial services firm Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. The filing remains the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets.[1]


"In truth the products were neither “mini” nor all that much to do with Lehman. In Hong Kong alone, thousands of residents held the securities. Lehman structured many of the instruments and provided a sophisticated guarantee through a swap, which is why they were dragged into the firm's bankruptcy, but the underlying assets were mostly collateralised-debt obligations issued by others."

pan's picture

It's all paper, or binary in memoy.

Brokenbroker's picture

That said some really are bad ideas and the reverse convertibkes are awful if the trigger is applicable with any closing price. If done properly it should be a trigger at maturity. In other words the revcons have u take the stock if it falls 25% at any point. If done right (slightly different structure and a bit less yield) u only lose or take the stock if it is down 25% at maturity. Much better chance of keeping par value with that versus the true revcon. They amount to selling a put to get yield.
Some other good ones are principal protected (still dependant on issuer credit hence a senior insecured credit. So lehman notes were paid like 20 cents on the dollar). But a note i have seen would have u earn the return of the dow jones index over 6 years but it was principal protected. If stocks are negative u get par. Now u don't get dividends but in 2009 it was a good way to get in the market if someone was nervous. Have to explain that u should only put 5-10% of assets in any one issuer as investment banks can go belly up. I am as bearish as can be and think it is critical to monitor the spreads if financials and particularly the one who underwrites your notes. Secondary market can dry up quick. Anyway. Like many instruments in life. They can be abused and sold inappropriately but they have their place. Most brokers would get paid the same whether they sold a note or a regular bond so i think sometimes they just have a better risk reward than 4% for 3 years. Same issuer risk. Offer something that gives u the opportunity to make 25% in 1 year.

Brokenbroker's picture

They are not all bad. Admittedly i am in the industry but one released near the top was a 2 year note. One for one on the down side and yet if even one percent positive in 2 years u earn About 38% (cant remember the exact number). Now the stock is 25% lower and same firm released a note that pays u if the stock is positive or negative for 2 yers. Capped at a 40% return u receive leverage of 2x on the upside. If stock is negative u receive one for one positive return. Caveat or u lose if stock is down 25% in 2 years as u are down one for one. They are simply options and zero coupon bonds underwritten by investment banks so u are taking on the cresit risk of the issuer but the risk rewards can be interesting and effective if used properly. The absolute return notes are nice in an environment like now where the top seems likely. O

Godisanhftbot's picture

 I read through some of these nonsense instruments years ago. Figured out that it was just a convoluted way of robbing the public blind. 

 So you lose two ways, the investment stinks and the stock stinks even worse.





Cast Iron Skillet's picture

reading about that reverse converting bullshit makes me think I need to buy more silver.

max2205's picture

This could give derivatives a bad name.......

idea_hamster's picture

LOL -- too bad I can only ^ 1x.