Tuesday, 28 October 2025 Reading time : 3 minutes

Reverse convertibles are very popular with investors as they offer a combination of regular income and a clearly defined risk profile. The low strike reverse convertible is characterised by its defensive structure.

With this type of product, the price of the underlying asset is also observed at expiry to determine whether it is above or below the strike. The only decisive factor here is the price at expiry, as there is no barrier. Therefore, the price performance during the term is irrelevant.

• If the price of the underlying asset is at or above the strike price at the end of the term, investors receive the full nominal value of their investment.
• If the price is below the strike price, the underlying asset is delivered in the form of shares. In this case, investors bear the price risk.

The coupon is paid out in any case, making reverse convertibles a stable source of income.

The strike is therefore a key parameter in structuring reverse convertibles. In the low strike version, the strike is below the price of the underlying asset at the time of fixing — for example, 80% or 90%. Overall, the low strike reverse convertible has a more conservative risk profile than a reverse convertible with a strike of 100%:

• More conservative risk profile: As the strike is below the fixing price of the underlying asset, the probability of the underlying falling below the strike by the end of the term is reduced. This offers investors an additional safety buffer.
• Lower purchase price: If the securities are delivered, the purchase price for the delivered shares is lower than for a product with a strike price of 100%. This can limit the potential for loss.
• Lower return: The low strike variant's more conservative nature is reflected in a lower return, as the coupon is usually lower than that of a reverse convertible with a strike of 100%.

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