Quiz on Turbo Certificates / Knock-out warrants

[docskeptic]

My broker requires me to complete a CLP tutorial in order to trade certain instruments. I can't by the love of god solve these two questions. No matter which formulas I use, I keep getting 4.7-ish for the first one and 35-ish for the second one. Would love for someone to hint me in the right direction.

1) Assume a turbo certificate on ABC share. The certificate has a strike and barrier set at EUR 36.00. The share is trading at EUR 40.00 and the certificate at EUR 4.20. The current leverage is 9.5 (the price of the share divided by the price of the certificate). The price of the share increases to EUR 45.00. What is now the leverage?

My assumption is that the certificate price needs to change...

a) 12.0

b) 4.9

c) 3.2

2) Assume a turbo certificate on ABC share. The certificate has a strike and barrier set at EUR 36.00. The share is trading at EUR 40.00 and the certificate at EUR 4.20. The current leverage is 9.5 (the price of the share divided by the price of the certificate). The price decreases to EUR 37.00. What is now the leverage?

Do I need to calculate the leverage differently in this one? I would have used the same formula as in 1)...

a) 3.2

b) 15.5

c) 30.8

 

[docskeptic]

I guess 4.9 and 30.8 are correct.

 

[loida]

@docskeptic I have to take the same quiz. What leverage formula did you use? Wherever I look, leverage formula is the same as given in the questions: leverage = price of the share * ratio / price of the certificate. Ratio si 1 in our example. This, however, gives answers 10.7 and 8.8, which is different from your answers, and also doesn't match any of the answers I can choose.

Link to relevant broker article.

 

[docskeptic]

@loida How I remember it: Intr. Value - intr. Price is a constant. This number is retrieved from the previous question. If you give me all your knockout-questions, I may be able to help.

Side note: IBKR still has not upgraded my trading permissions. I even called support and opened a ticket with them. Expect it to take weeks instead of the usual one or two days due to current market conditions.

 

[loida]

@docskeptic Previous question has the same setup, but asks "What are the intrinsic and time values?" and then offers:

a) EUR 3.80 and 0.40

b) EUR 4.20 and 0

c) EUR 4.00 and 0.20 (which is the correct answer from my calculations)

How did you calculate leverage in those two questions (4.9 and 30.8)?

I'm having trouble with those exact two questions you quoted, I've solved the rest.

I've also been trying to get trading permissions for two weeks now... I'm calling them again tomorrow.

 

[docskeptic]

@loida My solution is correct, just copy it if you have the same numbers

Your intrinsic value is also correct. Those 20 cents, you need in the calculation of the other 2 questions.

 

[loida]

@docskeptic Thanks. And good luck with your approval.

 

[docskeptic]

@loida It has been 24 days. I am calling them again in a week, it's not too urgent for me. Cheers

 

[docskeptic]

@loida I just got approved.

 

[loida]

@docskeptic Congratulations! I'm still waiting and talking to my broker almost each day... they admitted they definitely have some kind of problem.

 

[loida]

@docskeptic I got approved too, finally.

 

[docskeptic]

@loida Awesome

 

[maxlo009]

@docskeptic Can someone help me with the other questions please? to the same clp tutorial

 

[maxlo009]

1. Assume a bonus certificate on ABC share. The certificate has a strike and a cap of EUR 45.00 and a barrier set at EUR 36.00. What is the certificate worth if on expiration? The underlying trades at EUR 46.00 and the barrier has not been touched during the lifetime of the certificate.

a)46.00

b)45.00

c)36.00

1. Assume a bonus certificate on ABC share. The certificate has a strike and a cap of EUR 45.00 and a barrier set at EUR 36.00. What is the certificate worth if on expiration? The underlying trades at EUR 40.00 and the barrier has not been touched during the lifetime of the certificate.
   
   a)36.00
   
   b)40.00
   
   c)45.00
2. Assume a bonus certificate on ABC share. The certificate has a strike and a cap of EUR 45.00 and a barrier set at EUR 36.00. What is the certificate worth if on expiration? The underlying trades at EUR 40.00 and the barrier has been touched during the lifetime of the certificate.
   
   a)36.00

b)40.00

c)45.00

1. What is not a risk associated with leveraged ETFs and Factor certificates?
   
   a)The sponsor may be unable to pay what you are owed due to financial difficulties
   
   b)The leverage factor may change over time
   
   c)The cumulative performance of the product may not match the performance of the underlying times the leverage factor

 

[loida]

@maxlo009 1a, 2c, 3b, 4b.

 

[adisciplenamedmark]

@loida I guess 1 is b), as the certificate is capped to EUR 45.

 

[maxlo009]

@loida Thank you very much!

 

[bjdea1]

@docskeptic Turbo's are terrible. You have zero control over your stop loss

 

[lovegod033]

@bjdea1 While this may be sound advice, OP never said they want to trade Turbos. OP clearly states that the quiz for trading a "certain instruments" includes questions about Turbos.

 

[docskeptic]

@lovegod033 Correct, I am not looking to trade Turbos.