Call zertifikate

What Are Call Zertifikate?

Call Zertifikate, also known as Call Certificates, are a type of structured product that allow investors to benefit from rising prices of an underlying asset. They are debt instruments issued by a financial institution, typically an issuing bank, whose value is derived from the performance of an underlying asset, such as a stock, index, commodity, or currency. As derivatives, Call Zertifikate provide a way to gain leverage on potential price increases without directly owning the asset.

History and Origin

The concept of structured products, including certificates, originated in Europe in the early 1990s as a means to provide retail investors with access to financial markets and various investment strategies. These instruments evolved from the warrant market, particularly in Germany and Switzerland, becoming a significant part of the European investment landscape. Early forms of certificates allowed investors to participate in the performance of an underlying asset with certain risk-return profiles. The European Structured Investment Products Association (EUSIPA) was founded in 2009 by key trade bodies to coordinate transparency initiatives and support uniform market standards across the continent, reflecting the growing importance and complexity of these products.²⁵, ²⁶

Key Takeaways

Call Zertifikate are structured products that allow investors to speculate on rising prices of an underlying asset.
They are issued by financial institutions and offer leveraged exposure to the underlying asset's performance.
Unlike direct ownership, the investor does not hold the underlying asset but receives a payout based on its price movement.
The potential profit from Call Zertifikate is theoretically unlimited, while the maximum loss is limited to the initial investment (the purchase price or premium paid).
These instruments often have a predefined maturity date and a specified strike price, which are crucial for determining their value.

Formula and Calculation

The payout for a Call Zertifikat at maturity generally depends on the relationship between the underlying asset's price and the strike price.
If the underlying asset's price at maturity ( (S_T) ) is above the strike price ( (K) ), the certificate will have a positive value. The payout is often calculated as:

\text{Payout} = \max(0, S_T - K) \times \text{Ratio}

Where:

(S_T) = Price of the underlying asset at maturity.
(K) = Strike price of the Call Zertifikat.
Ratio = The number of certificates required to control one unit of the underlying asset (e.g., if the ratio is 0.1, then 10 certificates relate to 1 unit of the underlying).

If (S_T \le K), the payout is zero, and the certificate expires worthless, resulting in a total loss of the initial investment. This formula illustrates how the certificate's value is derived from the underlying asset's performance relative to the strike price.²³, ²⁴

Interpreting the Call Zertifikate

Interpreting a Call Zertifikat involves understanding its sensitivity to the underlying asset's price movements and the impact of its key parameters. Investors who purchase Call Zertifikate typically anticipate a significant increase in the price of the underlying asset. The higher the underlying asset rises above the strike price by the maturity date, the greater the potential profit. Conversely, if the underlying asset's price remains below or at the strike price, the certificate will expire worthless. Investors should also consider the certificate's volatility and how it affects the certificate's price throughout its life, not just at maturity. For example, a certificate "in the money" means the underlying asset's price is already above the strike price, giving it an intrinsic value.²¹, ²²

Hypothetical Example

Consider an investor who believes the shares of TechCorp (currently trading at €100) will rise significantly. The investor decides to purchase a Call Zertifikat on TechCorp with the following characteristics:

Current Price of TechCorp Share: €100
Call Zertifikat Price (Premium): €5 per certificate
Strike Price (K): €105
Ratio: 1:1 (meaning one certificate relates to one share)
Maturity: 6 months

Scenario 1: Price Increase
After 6 months, TechCorp's share price rises to €120.

The Call Zertifikat's payout is calculated as: (\max(0, €120 - €105) \times 1 = €15).
The investor receives €15 per certificate.
Net Profit = Payout - Premium = €15 - €5 = €10 per certificate.
This represents a 200% return on the initial €5 investment (€10 profit / €5 premium). If the investor had directly bought the share, the return would be (€120 - €100) / €100 = 20%. This demonstrates the leverage offered by the certificate.

Scenario 2: Price Decrease or St²⁰agnation
After 6 months, TechCorp's share price falls to €95 or remains at €100.

Since the share price (€95 or €100) is below the strike price (€105), the payout is (\max(0, \text{Share Price} - €105) \times 1 = €0).
The Call Zertifikat expires worthless, and the investor loses their entire initial investment of €5 per certificate.

Practical Applications

Call Zertifikate are wi¹⁹dely used by investors for various purposes, primarily for speculation on upward price movements. They are particularly popular in European markets, including Germany, where they are listed on exchanges like the Stuttgart Stock Exchange. Investors can use Call Zertifikate to take a directional view on assets such as equity indices, individual stocks, commodities, or foreign exchange rates. For instance, an investor might use a Call Zertifikat on a stock index if they anticipate a broad market rally. The volume of structured products, including certificates, has shown growth in European markets, with active trading in leverage products. News reports highlight a trend where German investo¹⁷, ¹⁸rs have shifted towards structured products.

Limitations and Criticisms

While Call Zertifik¹⁴, ¹⁵, ¹⁶ate offer potential for significant returns, they also come with inherent limitations and risks. One major criticism is their complexity, which can make them difficult for retail investors to fully comprehend. German financial regulator BaFin has expressed concerns regarding investor understanding, inconsistent cost disclosures, and potential sales-driven conflicts of interest within the structured product market. The "knock-out" feature common in some certificates¹², ¹³ can lead to a total loss of investment if the underlying asset's price hits a predetermined barrier, even if it later recovers. Additionally, investors face issuer risk, as the ce¹⁰, ¹¹rtificate is an unsecured debt instrument of the issuing bank. If the issuer faces financial distress or insolvency, investors could lose their capital regardless of the underlying asset's performance. The broader category of derivatives, to which certificates belong, has also been scrutinized for its role in financial crises, with some analysts highlighting their potential to amplify systemic risks.

Call Zertifikate vs. Put Zertifikate

Call Zert⁷, ⁸, ⁹ifikate and Put Zertifikate are two fundamental types of certificates, differentiated by the direction of the market movement an investor wishes to profit from. A Call Zertifikat gives the holder the right to profit from an increase in the underlying asset's price, effectively betting on an upward trend. Conversely, a Put Zertifikat grants the holder the right to profit from a decrease in the underlying asset's price, allowing investors to benefit from a downward trend. While Call Zertifikate are used for bullish outlooks, Put Zertifikate are employed for bearish outlooks or for hedging against potential losses in a portfolio. Both types of certificates offer leverage and limit the maximum loss to the premium paid, but their payoff profiles are inversely related to the underlying asset's movement.

FAQs

What is the primary purpose of a Call⁴, ⁵, ⁶ Zertifikat?

The primary purpose of a Call Zertifikat is to allow investors to benefit from an anticipated increase in the price of an underlying asset, often with the added benefit of leverage.

Can an investor lose more than their initial investment with a Call Zertifikat?

No, the maximum loss an investor can incur when buying a Call Zertifikat is limited to the initial premium paid for the certificate. If the underlying asset does not perform as expected, the certificate may expire worthless, resulting in a total loss of the invested capital.

How does the strike price affect a Call Zertif³ikat?

The strike price is a critical component. For a Call Zertifikat to be profitable at maturity, the underlying asset's price must exceed the strike price. The greater the difference between the underlying asset's price and the strike price (above the strike), the higher the payout will be.

Are Call Zertifikate similar to options?

Yes, Call Zertifikate share similarities with traditional options, particularly call options. Both give the holder the right, but not the obligation, to benefit from price appreciation of an underlying asset. However, Zertifikate are typically issued as debt securities by banks and may have different structural features, such as specific knock-out barriers, compared to standardized exchange-traded options.

What is issuer risk in relation to Call Zertif¹, ²ikate?

Issuer risk refers to the risk that the financial institution (the issuing bank) that issued the Call Zertifikat may default on its obligations. Since certificates are unsecured debt instruments, if the issuing bank goes bankrupt, investors could lose their investment, regardless of the performance of the underlying asset.