Equity Linked Notes

Equity Linked Notes


Tied to some stock or index

Degree of principal protection – promise to get X% return of the underlying, and the promise of Y% of principal being kept safe. 

Set maturity vs. open maturity. Open maturity – the note is held until sold.  


When is the note paid for? Could be paid upfront or financed over time? 

The note can be paid periodically or at maturity. Tradeoff – let’s say 80% of the returns of the underlying after 5 years, vs. X% payment annually and only 50% returns at maturity. 


Equity Linked Bull Notes – similar purpose to an ETF. The SCP will buy some basket and pay all the transaction etc. costs, in exchange for some fixed fee. Can also be replicated with a forward or a swap. Can be replicated with options – the easiest way to limit the downside.