Leverage Products with Knock-Out

Unlike leveraged products without knock-out, leveraged products with knock-out have a barrier. As soon as this barrier is touched or passed, the relevant products expire worthless or at best with a low residual value. The knock-out thus represents a risk which, in comparison with a comparable leveraged product without knock-out, generally leads to greater leverage. Consequently, in this direct comparison the speculative nature of leveraged products with knock-out is especially evident. As in the case of traditional UBS warrants, however, UBS turbo warrants and UBS mini-futures, both of which are leveraged products with knock-out, can of course also be used both by investors who are willing to take risks in the short-term range and by investors with a long-term outlook, in order to hedge existing positions. 



Overview

Warrant with Knock-Out (2200)

Mini-Future (2210)
 


 

UBS Turbo Warrant

SVSP: Warrant with Knock-Out (2200)

Payoff diagramm UBS Turbo Warrant (Warrant mit Knock-Out)

In the case of UBS Turbo Warrants, also known as Turbos, the name says it all. With these investment instruments, investors who are willing to take risks can shift into turbo and considerably increase their yield potential. Call Turbos speculate on rising and Put Turbos on falling prices of the underlying asset (e.g. equities, indices, currency pairs, interest rates, commodities). During the term, the strike for Call Turbos is below the price of the underlying asset and for Put Turbos it is above it.

Turbos are less expensive than Vanilla Warrants and thus generally provide more leverage. However, investors have to pay a price for the opportunity to earn higher returns in the form of increased risk, as the strike also acts as a stop loss marker and is therefore also referred to as a Knock-Out Barrier. This barrier should not be reached or exceeded. If an investor bets on rising prices by buying a Turbo Call Warrant and the underlying asset hits or breaches the barrier, the Turbo Call Warrant expires immediately without value – its term ends prematurely. A Turbo Put Warrant on the other hand is geared towards falling markets. If the underlying asset belies expectations and moves to or above the barrier, the Turbo Warrant has to be written off as worthless. In other words, in the case of UBS Turbos, breach of a barrier amounts to a total loss of the capital invested.

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UBS Mini-Future

SVSP: Mini-Future (2210)

Payoff diagramm UBS Mini-Future (Mini-Future)

The performance of a UBS Mini-Future is relatively easy to understand, since it moves more or less in step with the underlying asset. With a UBS Mini-Futures Long, investors who are willing to take risks can speculate on rising prices, and with a Mini-Futures short, on falling prices of the underlying asset (e.g. equities, indices, currency pairs, interest rates, commodities). Since investors have to finance only a small portion of the underlying asset themselves, a leverage effect is created. As issuer, UBS pays the rest, i.e. the financial level. If the underlying asset of a Long Mini-Future appreciates significantly, for example, investors will earn above-average profits. The higher the financing level, the greater the leverage.

But borrowing money also costs interest. The issuer charges the investor for the financing costs by adjusting the financing level on a daily basis. The name "Mini-Futures" reminds us that these instruments operate much like standard futures contracts, i.e. futures, but unlike these their maturities are not limited. Another important difference compared to conventional futures is that investors never have to furnish additional funds for UBS Mini-Futures, as the instruments have an automatic loss limitation function called the stop loss level. If the underlying asset moves in an undesired direction and reaches the stop loss level, the Mini-Future expires with immediate effect. In this case, the issuer calculates the remaining value and disburses it to the investor – provided it is not zero. The stop loss level for Long Mini-Futures is set slightly above the financing level and in the case of Short Mini-Futures slightly below. The stop loss level therefore limits the risk and prevents an obligation to pay further capital. If the stop loss level of the underlying price is reached or exceeded, a considerable loss of the invested capital can be expected (total loss is possible).

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