Twin Win

A Twin Win is a structured product that pays the investor the rise of the underlying and also turns its fall into a gain, as long as a downside barrier is not breached. If the barrier is hit, the investor follows the underlying down. The investor gains from movement in either direction, within limits.

How it works

The standard structure combines a zero-coupon bond, an at-the-money call, a long down-and-out put and a short down-and-in put, all at the same strike. While the barrier is intact, the down-and-out put pays the absolute value of the fall. Once the barrier is breached, that put disappears and the down-and-in put takes over, so the payoff becomes the underlying’s performance. Upside participation can be set below or above 100%, depending on rates and volatility. The barrier can be observed continuously or only at maturity, and continuous monitoring makes a breach more likely.

Example

Hypothetical Twin Win with 100% participation and a 60% barrier observed at maturity. If the underlying ends at 120%, the investor receives 120. At 80%, the 20% fall becomes a 20% gain: the investor receives 120. At 50%, the barrier is breached and the investor receives 50.

On the desk

The payoff is at its highest just above the barrier and falls sharply just below it: 139 at 61%, but 59 at 59%. That discontinuity makes the hedge expensive around the barrier near maturity, and it is the key risk to understand for anyone holding the product.