Reverse bonus certificates
Reverse bonus certificates offer the potential for positive returns in a declining market. An investor buys a reverse bonus certificate for the currently offered price and can sell it at any time for the current bid price but gives up the right to any bonus if the certificate is sold before the maturity date.
Three situations may occur during trading:
1) Certificate growth during its lifespan does not exceed the barrier (for DAXRBON2 it is 35%) and does not drop below the bonus on the maturity date (for DAXRBON2 it is -26%). In this case the bonus is paid for (DAXRBON2 it is 26%) from the nominal value.
Example:
An investor buys a DAXRBON2 certificate at CZK 2,700. The zone is from -26% to +35% with regards to the fix of 7,588.03 points. The DAX index during its lifespan increases by a maximum of 25% with respect to the fix. At the maturity date the DAX index has a value of a) 7,400 points. (decline compared to the fix of 2.5%), b) 7,600 points. (growth of 1% compared to the fix). The nominal value of the certificate is €100.
- a) The investor will receive the bonus of 26%, i.e. €126.
- b) The investor will receive the bonus of 26%, i.e. €126.
2) The certificate has declined by more than the bonus on the maturity date (for DAXRBON2 it is -26%). In this case the absolute value of the negative yield will be paid (here a profit is earned).
Example:
An investor purchases a DAXRBON2 certificate for CZK 2,700. The zone is from -26% to +35% with regards to the fix of 7,588.03 points. The DAX index on the maturity date is at 5,311 points. (a decline of 30% compared to the fix), the nominal value of the certificate is €100.
As the decline in the index at the maturity date was higher than 26%, the holder is paid a return equal to the absolute value, or 30% of the nominal value, i.e. €130.
3) The certificate grows to a level that exceeds the barrier (for DAXRBON2 it is 35%), making the certificate a short certificate that will copy the performance of the underlying index in a ratio of 1:1 and the holder on the expiration date will be paid the profit or loss corresponding the changes in the level of return.
Example:
An investor purchases a DAXRBON2 certificate at CZK 2,700. The zone is from -26% to +35% with regards to the fix of 7,588.03 points. The DAX index rises by 45% when compared to the fix. At the maturity date the DAX index has a value of a) 7,900 points. (growth of 4% compared to the fix). Nominal certificate value is €100. Certificate growth exceeded the barrier meaning that the holder on the maturity date has a loss of -4 %, i.e. he or she will be paid €96.
A reverse bonus certificate is for investors who prefer long-term investments and anticipate a significant decline in the value of the underlying asset. The investor also does not need to be concerned with a slight increase or decline as the bonus is applied in such cases.
