| TRADE IDEAS 01/03/2019 2
Talisman explained
A talisman offers an indexation to the positive realisation
of the ‘absolute dispersion’ over a given strike.
At maturity, for each stock, we calculate the absolute
value of the difference between the stock performance
and the basket performance.
These values are then averaged, giving the ‘absolute
dispersion’.
If the absolute dispersion is above the strike, the
investor receives the outperformance above the
strike level.
Screening criteria
Selection of eurozone companies with foreign
revenues 50%.
Selection of companies with diversified revenue
exposure between the US and China.
Liquidity filter.
Payoff at maturity
Fig. 2: Absolute dispersion is long volatility and
short correlation
Sources: Bloomberg, BNP Paribas. The green arrows indicate an example of stock moves in a sample basket, with the green dotted line indicating the average move. talisman P&L is calculated based on the average absolute stock move relative to the move of an equally weighted basket.
Fig. 3: Sector exposure of the basket
(# number of stocks)
Sources: Bloomberg, BNP Paribas
EQUITY & DERIVATIVES
Under these market conditions we expect greater
stock divergence, resulting in higher absolute
dispersion.
Ticker Name
EL FP Equity EssilorLuxottica SA
MC FP Equity LVMH Moet Hennessy Louis Vuitton SE
ADS GY Equity Adidas AG
FR FP Equity Valeo SA
BMW GY Equity Bayerische Motoren Werke AG
DAI GY Equity Daimler AG
CON GY Equity Continental AG
ABI BB Equity AnheuserBusch InBev SANV
UNA NA Equity Unilever NV
RI FP Equity Pernod Ricard SA
SPM IM Equity Saipem SpA
BBVA SQ Equity Banco Bilbao Vizcaya Argentaria SA
AIR FP Equity Airbus SE
SU FP Equity Schneider Electric SE
NOKIA FH Equity Nokia OYJ
AMS SQ Equity Amadeus IT Group SA
AKZA NA Equity Akzo Nobel NV
DSM NA Equity Koninklijke DSM NV
BAS GY Equity BASF SE
WKL NA Equity Wolters Kluwer NV
Fig. 4: talisman basket
Ankit Gheedia CFA, Equity and Derivatives Strategist, BNP Paribas London Branch
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