Academy 03Basic Turbo’s and short selling

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Part of company Dividend

Stocks

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Loan Coupons

Bonds

C = coupon payment n = number of payments i = interest rate, or required yield M = value at maturity, or par value

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Bull and Bear market Lending and selling a share Stocks and bonds

Short and Long

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Negative aspects Naked short selling Credit Crisis

Criticism

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Short Squeeze

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Hedging Correlations Capm

Risk versus return

Marktrisico

Rf: risk free rateRi: return stockRm: return market

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Different types of orders◦ Limit◦ Stop loss◦ Stop limit◦ Trailing stop

Binck

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Unit4

Proposal

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Break

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Turbo’s Why important? Possibility to enhance your return in relation

to a direct investment

More advantageous in short-term investing◦ B&R Competition

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How does it work? Assortiment

◦ Underlying value, no direct investment Leverage

◦ High returns possible Value Stop-loss level

But.. Costs (e.g. Financing costs) Risks (e.g. Stop-loss level)

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Assortiment What products can be trade with turbo’s?

◦ Regular stocks◦ Bonds◦ Indices◦ Valuata’s◦ Commodities◦ ...

◦ Turbo’s short vs. longwww.abnamromarkets.nl/turbo

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Leverage

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Leverage

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Leverage

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Value Value equal to the difference between price

of underlying value and financing level turbo

Value turbo long = Price underlying value – financing levelValue turbo short = Financing level – Price underlying value

Note: Currency exchange rate

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Financing level Influences:

◦ Value turbo◦ Leverage factor

Value turbo

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Stop-loss level No expiration date Value turbo never negative

So, existence of stop-loss level◦ Losses at max total investment◦ Removed from exchange◦ Residual value

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Tradability Euronext Amsterdam 9:05 till 17:30 Normal bid (bied) – offer (laat)

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Costs Financing costs/benefits

◦ Daily completion◦ Libor rate (Londen Interbank offered rate)◦ Turbo short(costs) vs. Turbo long(benefits)

Buy and sell costs (depends on broker) Taxes

◦ We advice to go to tax adviser if necessary

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Risks Price Leverage Stop-Loss

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Risks Exchange rate risks

◦ Abroad investment Interest rate risk (changing) Credit risk

◦ Bankruptcy ABN Amro

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Example Dow JonesValue turbo long = price underlying value – financing level

(ratio x exchange rate)

Price underlying value 11.000 pointsFinancing level 10.000 pointsStop-loss level 10.200 pointsEuro/dollar exchange rate 1,25 Ratio 100Value turbo long 8Leverage 11

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Scenario’s(1) Scenario 1:

◦ Dow Jones increases with 400 points◦ Return from 11.000 till 11.400 is 3,64%◦ Value turbo?◦ Return?

Scenario 2:◦ Equal price. Anything happens?

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Scenario’s(2) Scenario 3:

◦ Dow Jones decreases with 300 points◦ Return from 11.000 till 10.700 is -2,73%◦ Value turbo?◦ Return

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Scenario(3) Scenario 4:

◦ Dow Jones decreases with 800 points◦ Stop-loss is 10.200 and bank sells product for

10.150 (-7,73%)◦ Value turbo?◦ Return?

Scenario 5:◦ Scenario 4, but bank sells at 9.995?

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Conclusion Turbo’s Opportunity to leverage Huge profit- and loss potential Don’t lose more then investment

◦stop-loss Easily tradable Broad asortiment Euronext Amsterdam

But.. Risk and costs involved!

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Deutsche Bund

Proposal

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Leverage turns good deals into great deals!*

*©CFQ