Structured notes are financial instruments that combine elements of bonds and derivatives. Issued primarily by banks, they are linked to underlying assets such as stocks, indices, currencies, or commodities. The primary advantage of structured notes is their flexibility: they can be tailored to meet various investment goals and risk appetites.

One of the key benefits of structured notes is the potential for high returns with relatively small investments. Their complex financial structures can provide substantial coupon payments or significant capital gains. For example, structured notes might offer attractive returns during periods of market volatility or when linked to high-performing assets.

The high return potential comes with significant risks. Key risks include:

1. Credit Risk: If the issuer of the note defaults, you could lose your investment.
2. Market Risk: Fluctuations in the prices of the underlying assets may lead to losses.
3. Liquidity Risk: Structured notes may be difficult to sell before their maturity date, potentially leaving you with an illiquid asset.

Over the past few years, several examples of successful structured note transactions highlight their potential:

• Contingent Income Notes Linked to the S&P 500 Index: Investors in these notes enjoyed substantial returns as the index performed well. These notes provided stable coupon payments despite minor market fluctuations.
• Growth Notes Linked to Large Tech Stocks: In a booming technology sector, growth notes yielded high returns due to rising stock prices of major tech companies.

Not all transactions with structured notes have been successful:

• Energy-Linked Notes Linked to Energy Stocks: In 2021, falling oil prices led to significant losses for investors holding energy-linked notes. The instability in the oil market outweighed potential high returns.
• Fixed Income Notes in a Bull Market: While low-risk, fixed income notes underperformed compared to the equity market, resulting in missed opportunities for higher returns.

Purchasing structured notes is not a guarantee of success. To maximize potential returns, careful analysis is required. Here are some tips for selecting the right structured notes:

1. Research the Issuer: Opt for notes issued by reputable and financially stable banks.
2. Analyze the Underlying Asset: Understanding the behavior of the underlying asset will help assess the potential of the note.
3. Create a Mathematical Model: Using tools like Excel to build a mathematical model can help predict the performance of structured notes and inform your decisions on buying or selling.

Knowing when to exit structured notes is crucial. Do not wait for the notes to reach maturity if market conditions deteriorate. Regularly monitor the market and sell notes at the first sign of a market downturn to avoid potential losses.

To excel in trading structured notes, continual learning and skill improvement are essential. A valuable resource for understanding this topic is Investopedia, which offers comprehensive materials on structured notes. For beginners who may lack confidence, consulting professionals is advisable. While there are not many specialists in this area, those available can offer valuable guidance and advice. If needed, I can recommend a few trusted experts.

I will give you an example of a high-profit structured note investment from a couple years ago.

As we remember from the beginning, a structured note is a financial instrument that combines a traditional security with a derivative component, linked to the performance of an underlying asset, index, or other market measure. Structured notes provide customized risk and return profiles, enabling investors to benefit from the performance of the underlying asset while receiving some level of protection or enhanced yield.

The one in this example was a discount note (which is a type of a structured note). Discount notes in particular are issued at a price below face value and mature at full face value. Positioned on the riskier and more complex side of financial derivatives, discount notes offer the potential for significantly higher returns if the underlying assets exceed predefined barriers before or at the final redemption date.

1. So, here are the bought note credentials:

The discount note was issued in April 2020 at a price of 49.1%. An investment of USD 1,000 in this note would result in a nominal value of USD 1,000 / 49.1% = USD 2,037. After significant growth over six quarters, by October 2021, all underlying assets surpassed the predetermined call barrier. The note was redeemed at 100% of its nominal value, yielding a total return for the investor of USD 2,037. This results in an overall return rate of USD 2,037 / USD 1,000 – 1 = 104%. The annualized return rate is 104% / 1.5 years = 69%.

According to various sources, approximately 55% of structured notes are closed with a profit, while 45% end with a loss. This data underscores the importance of thorough analysis and careful selection of investment options.

Structured notes can be an excellent tool for generating high returns in a favorable market. However, they come with significant risks that require careful consideration. Through self-education, mathematical modeling, and timely decisions, you can enhance your chances of success and minimize potential losses. Happy investing, and I look forward to seeing you again on my website!