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I am having some trouble to understand how option premium can be a percentage for structured products. For example, in an Equity Linked Note, let's say the bond part cost 80% of notional we have 20% to be allocated in the option part. What percentage does it corresponds to ? How many options are needed?

Thank you

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  • $\begingroup$ Typically you start with an investment amount, say 100000 EUR. You compute how many options you need based on the payoff you would like to have. Then you look at the market price of that option and with that you compute how much those options cost. Dividing by your planned total investment gives you the percentage of option premium. (The balance will be put in a risk free asset). You try again with different strikes, maturities, etc. until you have a product you are happy with. $\endgroup$
    – nbbo2
    Sep 30, 2020 at 6:27
  • $\begingroup$ Ok so if I understand correctly the number of options is basically the notional/strike, isn't it ? $\endgroup$
    – Pierre_G
    Sep 30, 2020 at 15:30
  • $\begingroup$ @Pierre_G Can you please tell me the rationale for calculating number of options basis the Strike and not the option price ? $\endgroup$
    – user3126632
    Jun 2, 2021 at 5:45
  • $\begingroup$ @user3126632 to know what are the number of options required to get the payoff. ie in typical structured products, for a given notional we need to buy a certain number of option for the investor to get the payoff with his notional being the basis $\endgroup$
    – Pierre_G
    Sep 3, 2021 at 8:01

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