High Leverage without Maturity

Transcription

1 High Leverage without Maturity WAVEs XXL WAVEs XXL Your perpetual futures contract No premium No maturity No volatility impact Price information n-tv Teletext 770 vwd ticker 3000 Further information Deutsche Bank AG X-markets-Team Grosse Gallusstr D Frankfurt am Main Hotline: +49 (69) Printed on environmentally friendly paper. November 2002 Deutsche Bank AG D Frankfurt am Main

2 Content Leverage without maturity Situation Leverage without maturity 3 Solution Enjoy additional benefits 4 Success Factors How WAVE XXL Calls work 5 How WAVE XXL Puts work 8 WAVEs XXL: The benefits at a glance 9 Things to keep in mind 9 Appendix Glossary and further information on WAVEs XXL 10 Ordinary returns achieved by investing in shares or indices are often not high enough to satisfy the demands of the more active players on the stock exchanges, with many investors wishing to benefit to a greater extent from the movements in equities or indices. This effect is what the experts call leverage. An example of leverage is the scenario where if, for example, the share price moves by five percent, the investment moves by ten percent, i.e., twice as much. This is known as leverage by a factor of 2. In the past, investors used leveraged products for this purpose however, these products were only available with a limited lifespan. The longer the time to maturity, the more expensive it is to buy the product. The investors of today who are prepared to take risks no longer have to accept this limitation. In WAVEs XXL, Deutsche Bank AG is now offering for the first time a product that gives a leverage effect without premium or maturity. Furthermore, volatilities associated with the options universe have no impact. Leverage without maturity the innovative approach to risk-tolerant investing. 2 Content Situation 3

3 Enjoy additional benefits How WAVE XXL Calls work No premium, no maturity, No premium, no maturity, indefinite lifespan. Yet their real Dynamic and successful: small Dynamic and successful: small Leverage without premium no volatility no volatility advantages over conventional investment, high leverage investment, high leverage futures are also here in their With the WAVE XXL Call, You have the choice between indefinite lifespan and in their Leverage without premium Assuming that you believe that Deutsche Bank AG offers you Calls and Puts. WAVE XXL Calls easy tradability. German equity prices will rise the advantage of tracking the enable you to benefit from rising Reasons that speak for and that you therefore wish to movements of the DAX on a 1:1 prices in the underlying, such as Their built-in stop-loss function themselves invest in the DAX, you would basis without needing to be fully an index. WAVE XXL Puts enable offers an additional advantage over have to pay EUR 3,000 for an invested in it a clear funding you to benefit from falling prices. futures. Should the market run index certificate if the index level advantage. However, for every day Whetheer the underlying rises or contrary to your expectations, stood at 3,000 points. In the same on which you use the WAVE XXL falls, WAVEs XXL will replicate this the built-in stop-loss function of way, the WAVEs XXL offered Call, funding costs, in the form movement 1:1, adjusted of course WAVEs XXL will usually protect by Deutsche Bank reflect the of interest, will be generated. by the cover ratio and possibly the investors from losing the entire movements of the DAX on a 1:1 For WAVE XXL Calls, these costs exchange rate. WAVEs XXL are capital invested. As opposed to basis, but do not cost as much. are charged by increasing the often referred to as perpetual futures, they are protected from This creates a leverage effect. The strike price on a daily basis. In futures due to the combination any losses over and above the following example will illustrate our example, the funding costs of this tracking dynamic and an initial capital invested. this effect: A WAVE XXL Call with are 5% p.a., resulting in a daily a cover ratio of 0.01 has a strike charge of approx index price and a so-called initial funding points (5% x 2,600/365) or, in level* of 2,600 DAX points. In other words, 0.36 cents per addition, it features a stop-loss WAVE XXL Call. After one day, level of about 6% (barrier level the new strike price would adjustment rate) above the strike therefore amount to 2, price, i.e., initially, 2,760 points. points. At an unchanged DAX The difference between the level of 3,000 points, the WAVE current DAX level and the strike XXL Call will have a value of price of the WAVE XXL Call is points (3,000 2,600.36) 400 points, resulting in an initial or EUR price for the WAVE XXL of EUR Example DAX level Funding Strike price Stop-loss Price of WAVE 3, points level level XXL Call (index points) (index points) (index points) (EUR) * All terms marked in blue are explained in detail on page 10. Issue date 2, , , After one day 2, , , Solution Success Factors 5

4 Reasons that speak for funding level after the close of The WAVE XXL Call now has a value by the WAVE XXL Call, resulting themselves trading on this day of the month, of EUR 6.82 (3,300 2,617.83, in losses. also called adjustment day. Thus, adjusted by the cover ratio). Let us take a look at the same the 2, index points will be This represents a performance However, if the DAX falls to the example one month later: The set as the new funding level for of 70.5 percent, compared to new stop-loss level of 2,770 points funding costs have amounted to the following month. In addition, a 10 percent increase in the or lower, the stop-loss function cents over 30 days and, at the stop-loss level is again fixed DAX this is how you benefit will be triggered, and investors the beginning of the trading day, at approximately 6% above the from the leverage effect. will receive a differential amount the strike price stands at 2, current strike price (2,770 points Naturally, downward movements (as described under in the glossary points. The current strike price in our example). in the index will likewise be below under The differential automatically becomes the new replicated with leveraged effect amount for stop-loss ). Example Development of strike price, funding level and stop-loss level DAX level Funding Strike price Stop-loss Price of WAVE 3, points level level XXL Call (index points) (index points) (index points) (EUR) Issue date 2, , , Adjustment day 2, , , prior to close of trading Both the funding level and stop-loss level are reset after the close of trading on the adjustment day. Adjustment day 2, , , following close of trading One day after 2, , , adjustment day Index 2, , , , , Stop-loss level Funding level 2, , Daily change in strike price Further assumption: 20 days after the first adjustment of the funding level and stop-loss level, the DAX moves up by 300 points (10 percent) to 3,300 points. This rise will also be reflected in the WAVE XXL Call. Days 1 month 2 months 3 months Term Example DAX level Funding Strike price Stop-loss Price of WAVE 3, points level level XXL Call (index points) (index points) (index points) (EUR) After 20 days 2, , , Success Factors Success Factors 7

5 How WAVE XXL Puts work WAVEs XXL: The Benefits at a glance If you wish to speculate on the falling prices of the underlying, there are WAVE XXL Puts. Funding costs must also be taken into consideration for WAVE XXL Puts. As Deutsche Bank AG gains a funding advantage from the associated hedge, the resulting benefits will be passed on to the investors. Thus, in contrast to WAVE XXL Calls, the funding costs are credited to you on a daily basis by adding them to the strike price. After one month, for example, funding costs have therefore accumulated over 30 days and the strike price will have increased because of these costs. Following the close of trading on the adjustment day, the strike price automatically becomes the new funding level, which will be fixed for the next month. In addition, the stop-loss level is again fixed at approximately 6% below the then current strike price. The leverage effect operates in the same manner as with WAVE XXL Calls, i.e., disproportionately to the negative movement of the underlying. Of course, if the price of the underlying increases, the WAVE XXL Put will lose its value accordingly. As long as the index remains below the stop-loss level of the WAVE XXL Put, the price of the WAVE XXL Put will be the difference between the strike price and the current index level. If the index reaches or exceeds the stop-loss level, the investor will be paid the differential amount (as described under Stop-loss in the glossary below). High leverage effect: a lower No margin calls or roll-over capital investment than a direct risks as with futures contracts investment in the underlying No interest costs for day trading Automatic built-in stop-loss level (payment of differential Tradable on every exchange amount) trading day, with Deutsche Bank AG as a market maker: No premium to CET on an overthe-counter basis with all major No maturity discount brokers; to CET on the Stuttgart No volatility impact (EUWAX) and Frankfurt Stock Exchanges. Things to Keep in Mind WAVEs XXL expire immediately if closes the position is the stoploss exercise price. the stop-loss level is reached during trading, i.e., when the strike price falls below the stop-loss level of The leverage effect magnifies, both a WAVE XXL Call or exceeds the positively and negatively, any price stop-loss level of a WAVE XXL Put movements in the underlying. (a stop-loss event). In such cases, you will be paid the differential As Deutsche Bank AG also engages amount (the difference between in transactions in the international the strike price and the stop-loss capital markets, any impact on the exercise price), which, in the worst price development by Deutsche case scenario, may be equal to zero. Bank AG itself cannot be ruled out. This will be affected by Deutsche Bank s hedging position, which For more information on the risks depending on the liquidity of the and rewards of barrier warrants, underlying and the size of the please consult: Basisinformationen position, Deutsche Bank AG has über Vermögensanlagen in Wertpapieren and Basisinformationen up to three hours to complete. The price at which Deutsche Bank AG über Termingeschäfte. 8 Success Factors Success Factors 9

6 Glossary and further information on WAVEs XXL Funding level: The amount on which the interest calculations for the funding of WAVEs XXL is based. On the issue of a WAVE XXL, this corresponds to the initial strike price. It does not change until the first adjustment day after issue. Thereafter, the funding level is increased monthly, at the end of each adjustment day, by the relevant funding costs for one month. If the adjustment day for the relevant month does not fall on a banking day, the next banking day will be deemed to be the adjustment day. The adjustment day serves as the basis of calculation point for the strike price, which changes daily. Because of the stop-loss level (barrier level), the WAVEs XXL will never show a negative value (although their value may be zero). Deutsche Bank fixes the stop-loss level on the adjustment day on the basis of the then current strike price. Please refer to our Internet or Teletext pages or to the relevant information systems or obligatory stock exchange notices, for the current stop-loss levels. The stop-loss level is triggered as soon as, during the course of trading, the price or level of the underlying equals, falls below (in the case of Calls) or exceeds (in the case of Puts) the stop-loss level. Deutsche Bank s hedging position for the relevant WAVE XXL will then be closed out. Depending on the liquidity of the underlying and the size of the position, Deutsche Bank AG has up to three hours to complete this transaction. The price at which Deutsche Bank AG closes the position is called the stop-loss exercise price. The differential amount for stop-loss: results from the difference between the stop-loss exercise price and the strike price in the case of WAVE XXL Calls. In the case of WAVE XXL Puts, the differential amount results from the difference between the strike price and the stoploss exercise price. The investor can sell the WAVEs XXL at this differential amount on the day that it is fixed. The differential amount will otherwise be automatically paid to the investor within five banking days. The differential amount will be published on the Internet and on Teletext, on the information systems and by way of obligatory announcements. Barrier level adjustment rate is the percentage by which the strike price is increased (in the case of Calls) or decreased (in the case of Puts) on a monthly basis in order to determine the stop-loss level. This rate is reset on the relevant adjustment day but should not exceed a specified percentage of the strike price. For WAVE XXL Calls, this rate is always rounded up to the next decimal place and, rounded down accordingly for the Puts. Funding costs: For WAVE XXL Calls, the interest accrued for funding is charged to the investor, while any earnings in the form of dividends, etc are credited. For WAVE XXL Puts, the interest is credited to the investor, while any dividends are debited. As the DAX is a total return index, dividends play no part in DAX WAVEs XXL. The interest is based on the market-standard reference interest rate plus an interest adjustment factor for WAVE XXL Calls and the standard market reference interest rate minus an interest adjustment factor for the Puts. The adjustment day iis the day on which both the funding level and the stop-loss level are recalculated, also taking the funding costs into consideration. The adjustment day will usually be the tenth calendar day of the relevant month. Investors can exercise WAVEs XXL on an annual adjustment day. Deutsche Bank has the right to terminate the WAVEs XXL, observing a minimum residual term of twelve months after giving notice, such notice to take effect on an additional adjustment day, determined by the issuer in its sole discretion, specified in the notice of termination. Note 2002 Deutsche Bank AG. The above is an excerpt of the most important terms and conditions of the securities presented in this document; it does not represent a full listing of contractual provisions. Details specified in this document do not represent investment advice, but shall be construed exclusively for the purposes of product description. All statements of opinion reflect the current assessment of Deutsche Bank and are subject to change without prior notice. Although details included in this document were taken from sources considered to be reliable, Deutsche Bank will not assume any liability for their accuracy, completeness or adequacy. All quotations and prices are subject to change. They only serve as a source of information and do not constitute an indication of tradable quotations / prices. Past performance is not indicative of future returns. The sale of these securities is restricted in various jurisdictions. This document, and the information contained therein, may only be disseminated or published in such states in which this is permissible pursuant to the prevailing statutory provisions. In particular, these securities must not be marketed in the United States of America, and must not be offered for purchase or sale to, or for the benefit of, any US person. 10 Appendix