Structuring margin
Definition · Level 10 · Derivatives pricing
Keep reading with Tradecraft
You’ve read your 3 free definitions this month. Tradecraft explains all 738 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
Profit a bank embeds in a note: issue price minus the fair value of its bond and option components, typically a few percent.
Example
Note sold at 100, components worth 98 → 2 points of margin.
Where Tradecraft teaches it
Level 10 · Derivatives pricing, in the lesson “Structured products: guaranteed notes, reverse convertibles, autocalls”: Decompose every note into bond + options, and say who is long what.
Related terms
- AutocallableNote that redeems early at par plus coupon if the underlying is at or above a trigger on an observation date; if never called, capital is at risk…
- Capital-guaranteed noteZero-coupon bond + call option: 100% of capital back at maturity (issuer credit permitting) plus a share of the upside.
- Discount certificateListed product = underlying − call (a wrapped covered call): bought below spot, with upside capped at the strike.
- Dividend futuresExchange-traded contracts on the dividends an index pays in a given calendar year; structured-product desks sell them to hedge their long dividend…
- Memory couponFeature where missed conditional coupons are paid later if the underlying is back above the coupon barrier on a future observation date.
- Participation rateShare of the underlying’s rise paid by a guaranteed note: (100 − zero-coupon price − fees) ÷ call price.