Payout Scenarios
Investors should be familiar with VETA's Trigger products' four types of revenue scenarios. The diagram below illustrates the different characteristics of these scenarios. Please refer to Glossary of Terms for the exact meanings of the terms used in each diagram.
In the following analysis of potential returns, let's assume an example Booster product with the following parameters:
Principal: $10,000
Term: 6 months
Monthly Knock-out Observation
Underlying Asset: BTC
Knock-out Coupon: 11.25% (non-annualized)
Participation Rate: 225%
Capital Protection: 80% capital protection
Scenario 2: No knock-out, maturity price higher than initial price
Scenario 1: Knock-out
What does this scenario mean?
On one of the knock-out observation dates during the product's term, the price of the underlying asset is higher than the knock-out price. At this point, the product is knocked out and terminates. In the following illustration, BTC's price on the knock-out observation date in the 4th month is higher than the knock-out price, resulting in the product being knocked out, and the investor receives full principal and coupon payment. It is important to note that in this scenario, the coupon payment is calculated based on a non-annualized interest rate. Therefore, it is more beneficial for investors to have the product knocked out earlier.
Investor's return:
Earnings = $10,000×11.25% = $1,250（4 months）
Principal = $10,000
Total return = $11,250 (4 months)
Rate of return = 11.25% (4-month absolute return)
Scenario 2: No knock-out, maturity price higher than initial price
What does this scenario mean?
On each observation date during the product's term, the price of the underlying asset is not higher than the knock-out price, but the maturity price is higher than the initial price. In this case, investors receive absolute coupon income based on the percentage increase of the underlying asset multiplied by the participation rate (which will not exceed the knock-out coupon income in Scenario 1). In the following illustration, BTC's price remains below the knock-out price on all observation dates during the product's term. At the end of the 6th month, investors receive full principal and coupon payment.
Investor's return (assuming a 4.9% increase in the underlying asset):
Earnings = $10,000 × 4.9% × 225% = $1,025 (4 months)
Principal = $10,000
Total return = $11,025 (4 months)
Rate of return = 11.025% (4-month absolute return)
Scenario 3: No knock-out, maturity price lower than initial price but higher than the capital protection level
What does this scenario mean?
On each knock-out observation date during the product's term, the price of the underlying asset is not higher than the knock-out price, and the maturity price falls between the initial price and the capital protection level. In this case, investors do not receive any earnings and bear the loss equivalent to the decline in the underlying asset. In the following illustration, BTC's price remains below the knock-out price on all knock-out observation dates during the product's term. At maturity, investors would bear the loss corresponding to the decline in the underlying asset.
Investor's return (assuming a 5% decline in the underlying asset):
Earnings = $0 (6 months)
Remaining principal = $9,500
Total return = $9,500 (6 months)
Rate of return = -5% (6-month absolute return)
Scenario 4: No knock-out, maturity price lower than the capital protection level, downside protection activated
What does this scenario mean?
On each knock-out observation date during the product's term, the price of the underlying asset is not higher than the knock-out price, and the maturity price is lower than the capital protection level. In this case, the downside protection clause is activated, and investors bear only a 20% loss. In the following illustration, investors would bear the loss corresponding to the decline in the underlying asset, but the maximum loss would not exceed the agreed-upon capital protection level.
Investor's return (assuming a 30% decline in the underlying asset):
Earnings = -$2,000 (6 months)
Remaining principal = $10,000
Total return = $8,000 (6 months)
Rate of return = -20% (6-month absolute return)
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