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JPMorgan to price return notes linked to Strategic Volatility index
By Angela McDaniels
Tacoma, Wash., Jan. 31 - JPMorgan Chase & Co. plans to price 0% return notes due May 30, 2013 linked to the J.P. Morgan Strategic Volatility index, according to an FWP filing with the Securities and Exchange Commission.
The index aims to replicate the returns from combining a long position and a contingent short position in futures contracts on the CBOE Volatility index, or VIX index.
The index is rebalanced daily, and the index level incorporates a daily deduction of an index fee of 0.75% per year and a daily rebalancing adjustment amount that is equal to the sum of (a) a rebalancing adjustment factor of between 0.2% and 0.5% per day, depending on the level of the VIX index, applied to the aggregate notional amount of each of the VIX futures contracts hypothetically traded that day and (b) an additional amount equal to 0.2% and 0.5% per day, depending on the level of the VIX index, applied to the amount of the change, if any, in the level of the exposure to the synthetic short position.
The daily rebalancing adjustment amount is intended to approximate the "slippage costs" that would be experienced by a professional investor seeking to replicate the hypothetical portfolio contemplated by the index at prices that approximate the official settlement prices (which are not generally tradable) of the relevant VIX futures contracts.
The payout at maturity will be par plus the index return, which could be positive or negative.
Holders can request that the company repurchase their notes early. The payout will be par plus the index return minus a 0.5% repurchase fee. The issuer said it intends to accept all requests for repurchase but is not obligated to do so.
The notes (Cusip: 48125VLW8) are expected to price Feb. 24 and settle Feb. 29.
J.P. Morgan Securities LLC is the agent.
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