What’s Ahead:
- Structured Notes with a catapult feature are relatively straightforward to understand.
- Payoff potential is generally contingent on where the underlier’s price closes on the first observation date.
Despite a catchy name, Structured Notes with a catapult feature have a relatively straightforward payoff structure.
Essentially, a catapult begins as a Digital Note with a fixed coupon that is contingent upon the underlier’s price level being positive on the call observation date. On the call date, if the underlier finishes positive, the Note is called at what amounts to a fixed coupon, also known as a “call premium.”
However, if the underlier’s price level is beneath its initial level on the call date, the Note is not called, and the potential payoff generally “catapults” to a generous participation rate—which makes the new payoff structure similar to a Growth Note.
In a nutshell, catapults feature two possible payoffs which are contingent on whether the Note’s reference asset is above (Note called) or below (Note not called and payoff catapults) its initial level at the Note’s first observation (call date).
For example, the following Note pays a 10% call premium if called in one year, otherwise the Note’s payoff catapults to 235% participation at maturity. In addition, the Note includes 10% hard downside protection. This Note is presented for hypothetical purposes but you can see the relatively straightforward nature of this structure.
Content and any tools discussed are provided for educational and information purposes only. Halo Investing makes no investment recommendations and does not provide financial, tax, or legal advice. Any structured product or financial security discussed are for illustrative purposes only and are not intended to portray a recommendation to buy or sell a particular product or service. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Examples are provided for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Structured notes have complex features and may not be suitable for all investors. They are sold only by prospectus and investors should read the prospectus and pricing supplement carefully before investing as they contain a detailed explanation of the risks, tax treatment, and other relevant information about the investment. The tax treatment of structured notes varies depending on the offering, and can be uncertain in some cases. Structured products are sold through financial professionals, and investors should consult their accounting, legal, and/or tax professional before investing.
US236/1.0/2403
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