Autocall

An 'autocall' is a financial instrument, primarily a structured product, designed to provide investors with potentially high returns while also incorporating a feature that allows the investment to be automatically redeemed (or 'called') back to the investor at a predetermined date and price, usually based on the performance of an underlying asset, such as a stock index. This automatic redemption, or autocall, happens if the asset meets certain pre-defined conditions. The defining feature is this automated early termination with a pre-agreed payoff if conditions are met, offering the investor a degree of certainty and the potential for substantial returns within a shorter timeframe than the full investment term. This contrasts with other structured products that run to maturity.

Autocall meaning with examples

• The autocall note was structured to redeem if the underlying stock index was at or above its initial level at any of the pre-defined observation dates. Investors would receive their principal plus a pre-agreed return if the autocall condition was met, otherwise, the product continued. This made for an opportunity to see a shorter term payoff.
• Consider a five-year autocall product tied to a specific technology sector ETF. The product autocalled if the ETF was above its initial value after year 1, 2, 3, or 4. If it autocalled in year 3, investors receive their principal plus the accumulated coupon payments. If not, the product continued to the end with a larger payout.
• Before investing, review the terms of the autocall note. A product might autocall if an underlying asset closes at or above a certain barrier level. The barrier level's determination will impact the probability of the autocall and consequently, the returns.
• The autocall structure enabled the firm to offer investors an alternative return profile compared to a straightforward equity investment. Investors that purchased the product gained the opportunity to receive their capital back with a coupon. The term allows for a shorter, more liquid investment horizon.
• A typical autocall product offers a fixed coupon payment, plus a potential principal return, provided that the autocall condition is met. These structures offer a potential for early returns. The tradeoff typically lies in the product's overall return potential and the credit risk of the issuer.