A stock fund that can’t go down

A well-known magic of derivatives – a simple and brilliant trick that derivatives structurers can use to impress their friends – is that if you give me $100 today, I can invest $91 in treasuries at two years paying interest of 4.75%. , and in two years I will have $100. And I can invest the remaining $9 in two-year call options on the S&P 500 stock index, options that gain value if the S&P rises in those two years. These options cost, say, 13% of the current price of the S&P, so spending $9 on options will give me an option on about $70 of the index. And so I can offer you the following exchange:

If stocks go up, you get gains (well, 70% of them). If stocks fall, you don’t suffer losses. What a great job!