Sales of U.S. Structured Notes Tied to Facebook Inc (FB) Surge in 2014

Sales of U.S. Structured Notes Tied to Facebook Inc (FB) Surge in 2014

The sales of U.S. structured notes tied to the stock of Facebook Inc (FB) surged to record in 2014 due to the volatility associated with it, according to report from BloombergBriefs.

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The report indicated that banks’ sales of securities related to Facebook more than doubled from $204.2 million last year to $457.6 million this year based on data compiled by Bloomberg.

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The stock prices of social media companies such as Facebook are more volatile. Investors are attracted to purchase structured notes tied to these companies because banks managed to improve their terms, which were hurt by low interest rate

Higher volatility leads to better terms for certain types of notes


Michael Lynch, a managing director at Twenty-First Securities Corp noted that the issuers of notes are “trying to put shiny objects in from of the client.” He added that social media companies like Facebook are “volatile names and that’s what’s going to catch the investor’s eyes.”

The stock price of Facebook is expected to move almost twice as high as the benchmark standard for the S&P 500, based on the measures that derive volatility from options prices.

Facebook options trading debut

Facebook went public in 2012. The social network giant’s debut was marred by technical glitches, which caused the decline of its stock price. The problem also caused unpredictable volatility for the debut for Facebook options.

At the time, Facebook options had implied volatility of about 65% to 85% during the first 20 days of trading. The estimate was based on the volatility readings of technology companies including Groupon Inc (GRPN), LinkedIn Corp (LNKD), Pandora Media Inc (P) and Yelp Inc (YELP) during the first day of their options trading as well as the volume of their options and stocks.

UBS AG’s sales of notes tied to Facebook, Apple

Ben Eisen of Bloomberg Briefs noted the “higher volatility leads to better terms on certain kinds of notes.” Facebook had a volatility of 2.32 times the level of Apple Inc. (AAPL)’s volatility on April 16. That was based on the social network giant’s implied prices of three-month options. Since then, the social network giant’s volatility declined to 1.12 times higher.

Based on the prospectus filed by UBS AG with the Securities and Exchange Commission (SEC), the bank sold 18-months notes tied to Apple that pay 9.36% with protection against 20% of losses on December 8. The shares of Apple delivered 37% returns to investors this year.  Apple’s stock climbed over 42% year-to-date.

The bank sold similar-maturity securities tied to Facebook that pay 10.4% with protection against 25% of losses during the same day based on a separate prospectus submitted to the SEC. The stock price of the social network giant gained more than 47% year-to-date.

U.S. structured notes tied the Apple Inc. is the most popular among technology stocks. However, the sales for such securities dropped 22% to $566.5 million from the same period last year, based on data compiled by Bloomberg.

This year, investors bought $1.88 billion of structured notes tied to the most popular technology stocks.

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