Thursday, August 12, 2010

Callable Bull and Bear Certificates – an evolution of exotic options

This article appeared in Capital page of The Edge Malaysia, Aug 1-7, 2010

Malaysians are fortunate to be the first retail investors in South East Asia to trade the exotic Callable Bull Certificates (CBLC) and Callable Bear Certificates (CBBC), launched by CIMB earlier this month. Some investors must be curious about this product as to how it is an option similar to structured warrants in Malaysia, but yet differ significantly in other aspects.

In this three-part series, I will show how CBLCs and CBBCs are linked to exotic options, describe their essential features as well as provide examples of the product dynamics, pricing and risk. The focus however will be the motivation for the investor trading this product and what he should be aware of.