I understand how knock in barriers work. But what do geared put in a structured note mean? My understanding is in a geared put vs a regular knock in barrier, the loss for the investor is higher if the barrier is breached as the gearing quotient comes into play. So for example @ a 50% barrier, in a geared put option, the investor loss would double in case of a barrier breach? Can someone confirm this?
My understanding of a "geared put structure" is that it is a bought ATM put option on a stock, whereby the ATM put-option buyer sells (at the same time) some OTM puts. The number of OTM puts sold is greater than the ATM puts, to make the pay-off function decrease to zero linearly. The structure buyer owns the underlying stock and buys the structure for additional protection.
I found the following pay-off chart on the internet, which depicts the geared Put structure pay-off. The pink line is the underlying stock, and the blue function is the geared put structure pay-off (which consists of the geared put + the underlying stock)
From the diagram, and the explanation given above, I conclude that a geared put structure is quite different to a barrier option, which simply kicks-in or knocks out at a certain price level.
I look forward to answers and comments from other contributors, who might have more experience with this particular structure.