All,Just interested how these are structured. For instance, Virgin pays 130% of FTSE growth, or your money back in 5 yrs. Looks like hedge is an option with strike = today's FTSE, but (here is the question!) - how do they achieve guaranteed (for them) 130% growth of FTSE? The only thing I can think of is dividends on the constituents stocks. Let me know what you think.Cheers

Invest in 5 years bond to gaurantee return of current capital (approximately 80 percent of your cash), put whats left over into put options.Delta on your puts is 1.3. Interestingly WHSmith did just this with 1 billion of pensions assets last week. So its not just a retail phenomenon.

i think it's more likely to be a zero coupon bond paying 100% of initial investment plus 130% of a call option. they don't give you the dividends ...

Mmm... Split opinions?Can someone come up with an example (with numbers and formulas )?Cause I can't see how they can afford such gains (without taking extra risks) and limiting downside at the same time UNLESS we are talking about dividend gain that is not a part of "FTSE gain".Cheers

Erstwhilel, thankyou for the corrections you are of course right.Long term returns on equities without dividends is about the same as cash (1%). So you're really not getting a free lunch.

1. Buy a zero-coupon that matures in five years. With 4.3% in interest that costs approx. 82£. This will be our money-back guarantee.2. You now have 18£ that you use to buy ATM call options. If you scale FTSE to 100 and ATM volatility is 12.2% and div. yield is 3% that option cost 12£ for one unit of FTSE. You can buy 18/12 = 1.50 units of options.3. On the expiry day, if FTSE is on (scaled) 150 (50% up), you get 100£ from your ZC and 1.50*(150 - 100) = 1.50 * 50 = 75£ from your option, totaling in 175£.With this numbers you can guarantee 150% of FTSE growth.If you on the other hand bought FTSE for your 100, you would get 150 from the index rise and approx. 15 from the dividendsIf you invested in ZC you would get 123£ back.Seems like a good product, doesn't it!//Fredrik

Of course if you try:expected inflation =2.9 % (from spread on I.L. to gilts)and long term real return on capital from equities = 1%then the expected index rise =16 % and expected return on structured product=24% - same as you'd have got from the zero coupon bond.So if equity markets decide to fly its certainly a good deal (but then when arent options great for leveraging a bet).If instead inflation decides to take a run, you're going to find the capital gaurantee disapointing and its also likely equities will struggle.

Fredrik, great example, thank you!I understand Virgin promises to pay 130% of FTSE growth, hence in the example below an investor would be expecting from Virgin back (150-100)*130% = 65£ (+ 100£ initial investment is still below 175£ that Virgin would make).CheersQuoteOriginally posted by: ffyring3. On the expiry day, if FTSE is on (scaled) 150 (50% up), you get 100£ from your ZC and 1.50*(150 - 100) = 1.50 * 50 = 75£ from your option, totaling in 175£.With this numbers you can guarantee 150% of FTSE growth.//Fredrik

a little googling pulls upequity linked debt (pdf)