Last year, at least 450 new structured products were linked to Apple, according to SLCG. Three-quarters of them were issued when the stock was at least $550. The shares closed Friday at $439.88, down $60 for the week.
As a result, the value of Apple-linked products suffered a one-week drop of more than 15%, estimates Craig McCann, founder of SLCG. “The vast majority of them are now underwater,” he says.
Many investors will get far less than they expected. Losses exceed 25% on more than 100 of last year’s Apple-related products, SLCG estimates.
Investors should have asked this question before buying: Why would banks offer 10% interest when most one-year debt was paying about 1%?
The answer: Investment banks got something else in return. In plain English, the Apple-linked products gave firms a cheap way of hedging or betting that Apple’s stock would go down. Now, in many cases, they can dump the fallen stock on conservative bond investors who might not want it and, in turn, will sell it again.