Payout Scenarios
Last updated
Last updated
Investors should be familiar with the four revenue scenarios of VETA standard snowball products. The diagram below illustrates the different characteristics of these four revenue scenarios. See Glossary of Terms for the exact meaning of the terms in each diagram. In the following analysis of revenue scenarios, assuming the example standard snowball product is:
Principal：$10,000
Term: 6 months
Monthly knock-out observation, real-time knock-in observation
Underlying asset: BTC
Coupon rate: 30% (annualized)
Scenario 1: No knock-in and knock-out
Scenario 3: No knock-out after knock-in, the expiration price is lower than the initial price
Scenario 4: No knock-out after knock-in, the expiration price is higher than the initial price
What does this scenario mean?
On each knock-out observation day during the product's operation, the price of the underlying asset has not exceeded the knock-out price, and at the same time, the price of the underlying asset has never fallen below the knock-in price. In the diagram below, at each knock-in/knock-out observation point within the 6-month period, there have been no knock-in or knock-out events for BTC, and investors receive full repayment of the principal and coupon.
Investor's return:
Coupon interest = $10,000*30%*(6/12) = $1,500（6 months）
Remaining principal = $10,000
Total return = $10,000+$1,500 = $11,500（6 months）
Rate of return = 15%（6-month absolute return）
What does this scenario mean?
The price of the underlying asset exceeds the knock-out price on one of the knock-out observation days, terminating the product. In the diagram below, on the knock-out observation day in the fourth month, the price of BTC exceeds the knock-out price, resulting in the product being knocked out, and investors receive full repayment of the principal and coupon.
Investor's return:
Coupon interest = $10,000*30%*(4/12) = $1,000（4 months）
Remaining principal = $10,000
Total return = $10,000+$1,000 = $11,000（4 months）
Rate of return = 10%（4-month absolute return）
What does this scenario mean?
On one of the knock-in observation days during the product's operation, the price of the underlying asset is lower than the knock-in price, and the final maturity price is also lower than the initial price. In the diagram below, The price of BTC falls below the knock-in price at some point during the term of the product. At the product's maturity, investors would bear the loss due to the decline in the underlying asset. This is the only scenario where a loss occurs.
Investor's return (assuming a 5% loss in the underlying asset):
Coupon interest = $0（6 months）
Remaining principal = $10,000
Total return = $9,500（6 months）
Rate of return = -5%（6-month absolute return）
What does this scenario mean?
On one of the knock-in observation days during the product's operation, the price of the underlying asset is lower than the knock-in price, but the final maturity price is higher than the initial price. In the diagram below, BTC experiences a price below the knock-in price during the product's duration. However, at the product's maturity, investors will not incur any loss, but they will also not receive any coupon interest.
Investor's return：
Coupon interest = $0（6 months）
Remaining principal = $10,000
Total return = $10,000（6 months）
Rate of return = 0%（6-month absolute return）
