Daryll:If you want to more-or-less replicate the product: - buy a long term treasury or high grade corporate bond- Every year you take most of the coupon and buy an equity index call option at the money.- At the end of the year, sell the index option for whatever you can get for it.- Reinvest the proceeds in a long term bond and repeat steps 1 through 3.Assuming a $100k investment in this strategy:- buy $100k 10 year treasury yielding 4.16%.- Use $2660 to buy an S&P500 index call option. This might be SPYFS, which costs $5.40 per hundred shares. You would get options on 492.6 shares. This equates to options on about $60k.If the index goes up, you get the appreciation on $60k plus $1500 (the part of the coupon you ddn't use to buy options).A few caveats:- This example ignores commissions.- Note that the options only cover $60k notional. To get the full $100k covered, the insurer would sell an offsetting call option that effectively caps your upside, but delivers 100% of the rise between the at the money pricce and the cap. You could do it that way if you choose.- Every year, the amout of index options you can buy with your coupon will change as the VIX changes. Insurers adjust for this too, so you wouldn't be getting a free ride with the annuity.- You don't get dividends either with this strategy or the annuity.FYI, the commission on this product to the salesperson is generally 8 to 10% of the amount invested, paid up front. Goess whose hide that gets taken out of?I just saved you $8 or $10k, my friend. Worth way more than the cost of an annual TMF membership ;}.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra