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Equity Linked Notes (ELNs)  |  Trading Strategies of ELN


Trading Strategies of ELN

What is an ELN?

ELN is an equity structured product that aims to increase yields on cash reserves while taking a short term directional view on an underlying share. Under static market conditions, ELNs can be a lower risk alternative to direct share investment, and may outperform bank deposit and direct share investment.

Who are suitable to buy ELN?

Suitable ELN buyers include the following investors:

  • Investors who believe that the underlying stock will not have too much upside or downside
  • More sophisticated investors
  • Investors who would like to buy a particular stock but at a price slightly lower than the current price.
  • Investors should be prepared that they may have to take up the stock position if the price fails below the strike at maturity.

    How does ELN work?

    ELN is structured in the form of zero coupon bond, e.g. investor pays $95 on day 1. The investor receives $100 (Par Value)on day 30 (for a 1 month maturity ELN), yielding 5.26% or an annualized yield of 64.0%.

    What is the Commission Rate for trading ELN?

    A commission charge of 0.5% on your transaction amount will be applied on the settlement day and there will be no charge on redemption at maturity.

    When ELN matures, what would happen to the redemption at maturity?

    The redemption at maturity is as follows:

  • If the share price of the ELN closes at or above the strike price on the valuation date, the ELN holder receives the PAR value of the note.
  • If the share price of the ELN closes below the strike price on the valuation date, the investor buys the shares at the Strike price (number of shares equal to Par Value/Strike Price).

    The diagram below illustrates the possible scenarios: Chart

    What are the benefits of ELN?

    The benefits of ELN include the following:

  • Attain superior yield over money market instrument if stock closes at or above the strike at maturity
  • Buy stock at a lower than current price if stock closes below the strike at maturity
  • Issuers of ELN will provide secondary markets in the ELN
  • Flexible in the choice of underlying equity and maturity
  • ELN holder can earn high return even when the stock market moves horizontally

    What are the risks of holding ELN?

    The risks of holding ELN include the following:

  • Denominations of trades larger than equity investment
  • Do not allow frequent asset reallocation
  • ELN underperforms the underlying equity before maturity when the underlying moves favorably
  • Maximum loss incurred when underlying drops to zero after the ELN being exercised
  • Exposure to the issuer's credit risk

    ELN Glossary

    1. Launch Date
      The date on which the level of the underlying equity is fixed

    2. Settlement Date
      The date the investors is required to pay in full for the ELN

    3. Determination/Valuation
      The date the closing level of underlying equity is fixed

    4. Maturity Date
      The date the redemption amount is payable to the investor, or the shares of the underlying stock are delivered to the investor.

    5. Issue Price
      The price of the ELN, denominated in percentage of the par value, to be paid by the investors.

    6. Strike Price
      The level of the stock price which determines if the investors receive cash or stocks on the maturity date.

    7. Par Value
      The amount to be received by the investors on the maturity date if the share price of the underlying stock closes at or above the strike price on the valuation date.

    8. Yield
      The annualized return to be received by the investors if the share price of the underlying stock closes at or above the strike price on the valuation date.
    Should you have any enquiries on ELN, please call our customer service hotline on 3583 3388.




    Disclaimer:

    The above information is provided by Societe Generale ({SG}) .This material has been prepared for information purposes only and is not an offer to sell or a solicitation to buy the ELNs. It was obtained or derived from sources that SG and Taifook Securities Group ("we") believe are reliable, but whilst all reasonable care has been taken to ensure that stated facts are accurate and opinions are fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions expressed and facts referred to herein are subject to change without notice. We assume no fiduciary responsibility or liability for any consequences financial or otherwise arising from trading in ELNs if opinions and information in this documents may be relied upon. Please note that ELNs are not listed in any Stock Exchange. This is not a Capital Guaranteed Product. In a worse case scenario, investors could sustain an entire loss of their investment and should therefore reach an investment decision on this product only after careful consideration with their own advisers as to the suitability of this product in light of their particular financial circumstances. The investor should make its own appraisal of the risks and should consult to the extent necessary its own legal, financial, tax, accounting and other professional advisors in this respect prior to any subscription or acquisition.



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