What are Structured Products?

Structured products are pre-packaged investments that combine multiple financial instruments to create customized risk-return profiles.

Core Concept

Think of structured products as LEGO blocks for finance:

• Each “block” is a financial instrument (stocks, bonds, options)
• You combine them to build exactly what you need
• The result has unique characteristics you can’t get from single instruments

Simple Example

Traditional Investment:

• Buy 1 BTC for $50,000
• Hope it goes up
• Risk: Could lose everything

Structured Product (Principal Protected Note):

• Invest $50,000
• Get 100% capital protection
• Get 80% of BTC gains
• Risk: Limited to missing 20% of upside

Same underlying asset (BTC), completely different risk profile!

How They Work

The Building Blocks

Structured products combine:

1. Underlying Asset - What you’re exposed to (BTC, ETH, stocks, indices)
2. Options - Derivatives that modify your exposure
3. Bonds/Cash - Provide capital protection or income

The Magic Formula

Structured Product = Safe Asset + Options Strategy

Example Breakdown:

• Start with $50,000
• Put $45,000 in risk-free bond (grows to $50,000 in 1 year at 10%)
• Use $5,000 to buy BTC call option
• Result: Capital protected + crypto exposure!

Common Types

1. Yield Enhancement (Covered Calls)

Structure: Own asset + Sell call option

Goal: Generate income in sideways markets

Best For: Holders who want extra income and don’t expect huge rallies

2. Capital Protection (Principal Protected Notes)

Structure: Zero-coupon bond + Call option

Goal: Participate in upside with zero downside

Best For: Risk-averse investors who want market exposure

3. Range Betting (Range Accruals)

Structure: Bet asset stays within range

Goal: High yield if market stays calm

Best For: Traders expecting low volatility

4. Leveraged Exposure (Leverage Certificates)

Structure: Borrowed money + Options

Goal: Amplify gains (and losses)

Best For: Aggressive traders with strong conviction

Why Use Structured Products?

1. Customized Risk/Return

Want 70% downside protection and 150% upside? There’s a structure for that.

Traditional investments force you to accept their risk profile. Structured products let you design your own.

2. Express Market Views

3. Income Generation

Earn yield on assets you’re holding anyway.

• Covered calls: 2-5% monthly income
• Cash-secured puts: Get paid to wait for dips
• Range accruals: High yield in stable markets

4. Capital Efficiency

Do more with less capital.

Example:

• Want $100k BTC exposure
• Only have $20k
• Use leverage certificate (5x)
• Get full exposure with fraction of capital

5. Hedging

Protect existing positions.

• Own BTC? Buy put options (insurance)
• Worried about crash? Buy principal protection
• Need to lock in gains? Sell call options

Real-World Example

Let’s structure a real product for a common scenario:

Scenario: You own 1 BTC ($50,000) and want to:

• Keep the BTC (not sell it)
• Generate monthly income
• Still benefit if BTC rises up to $55,000

Solution: 30-day Covered Call

Components:
1. Long 1 BTC (already own it)
2. Sell 1 call option:
   - Strike: $55,000
   - Expiry: 30 days
   - Premium: $2,500

Payoff Scenarios:
- BTC stays at $50,000: Keep BTC + $2,500 = 5% gain
- BTC rises to $55,000: $5,000 gain + $2,500 = 15% gain
- BTC rises to $70,000: Cap at $55,000 + $2,500 = 15% gain (miss $15k)
- BTC falls to $40,000: Loss $10,000, but have $2,500 = -15% (better than -20%)

Result: You’ve created a product that:

• Generates 5% monthly income if flat
• Keeps upside to $55,000
• Reduces downside by $2,500
• Costs you nothing (you own the BTC already)

Risks to Understand

1. Opportunity Cost

Covered calls cap your gains. If BTC moons to $100k, you miss out.

2. Complexity

More moving parts = more that can go wrong. Understand each component.

3. Counterparty Risk

Someone needs to honor the contract. What if they can’t?

4. Early Termination

Some products lock your capital. Can’t exit without penalties.

5. Hidden Costs

Fees can eat returns. Always check the fee structure.

Who Uses Structured Products?

Retail Investors

• Want customized exposure
• Seek income generation
• Need capital protection

Institutional Investors

• Hedge large positions
• Express complex views
• Optimize capital allocation

Crypto Traders

• High volatility = high premiums
• 24/7 markets
• Diverse yield strategies

Traditional vs. Crypto Structured Products

Key Difference: Crypto’s high volatility means much higher premiums for option sellers!

How to Get Started

1. Learn the Basics - Understand options and derivatives (next sections)
2. Start Simple - Begin with covered calls, the easiest strategy
3. Use FORGE Tools - Structure and price products instantly
4. Start Small - Test with small positions first
5. Monitor Closely - Track your Greeks and P&L daily

Next Steps

Now that you understand what structured products are:

• Key Terminology - Master the language
• Your First Covered Call - Hands-on tutorial
• Understanding Greeks - Learn risk metrics

Or jump straight to structuring:

Structure a Product →

Remember: Structured products are powerful tools, but they require understanding. Never invest in something you don’t fully comprehend.