Guys, I need some help here. Just over a month ago, BILSTB would have been valued @ 7377 when BIL was at 21540. Looking at the matrix today, BILSTB would only be valued @ 7209 for the same price of the underlying. That's 2% less - I thought there was no time decay for installments? Is this the interest being charged and exactly how does this work? Preston?
I am no expert on this topic, this is the primary reason why i do not trade installment. I hate surprises. Possible solution 1. Are you sure that the original installment did not roll over into a new installment. That could account for the descrepancy. New cost including interest.
Seondly i am aware that standard bank have incorporate the "delta" principle into share installment. i.o w if the share price increases the delta can be greater than 1. 3. Last solution contact the call centre or post your original enquiry under "contact us". Someone with a greater understanding than me will try to assist you.
Thanks Preston. The installment didn't roll over - the only explanation I can think of is that the interest comes into the price over time and is not fully priced in for the term of the installment at the outset?
The installment loses value over time. Lets say you bought the installment 180 days before expiry, the interest would be for the 180 days. Lets say at 90 days, assumin the same share price, the interest portion would be less, as time has reduced. Assuming share price and the interest rate remains constant then over time towards maturity of the installment the interest charge component reduces. Installment price = portion of underlying + interest for remaioning preiod.
So uncle, am I correct in saying that the remaining interest component = Installment Price - (Underlying Spot - Strike Price), which as of today is equal to about 1900c/installment for BILSTB. So this 1900c will reduce to 0c by the time the installment expires?
Correction: make that 1658c/installment which equates to an interest rate of 48% per annum at current prices... funny how they fail to mention that in all of their tutorials! I suppose BIL is pretty low right now which makes the interest component relatively large.
I learn't the hard way! In essence what I was saying that as time closes to maturity, the bank will have to fund the shares for a shorter period of time, hence the lower interest. Your interest rate of 40% plus, seems too high, but i suppose as the value of the instalment erodes, the initial interst you paid when you bought the installment now makes up a rather larger component of the installemnt at todays price.