Investopedia

Continue to Site »

Market Index Target-Term Security - MITTS

Filed Under » , , ,
Dictionary Says

Definition of 'Market Index Target-Term Security - MITTS'

A type of principal-protected note initially engineered by Merrill Lynch that is designed to limit the amount of downside risk an investor is exposed to while also providing a return that is proportional to that of a specified stock market index. Market Index Target-Term Securities (MITTS) typically do not afford their owner the right to redeem the security before maturity, nor do they usually afford the right to call the issue in early.

Investopedia Says

Investopedia explains 'Market Index Target-Term Security - MITTS'

The purpose of this type of security is to provide equity exposure to an investor's portfolio while still providing a guarantee to the investor that, even if the stock market performs poorly during their investment horizon, they will still be left with a specified minimum amount of capital.

For example, assume an investor could purchase MITTS units today at a price of $10 per unit. The MITTS mature in exactly one year, at which time they require the return of the $10 principal value to investors, plus a proportional return based on the performance of the S&P 500 during that time period. So, if the S&P 500 crashes during the year, the investor still receives their $10 per unit back. However, if the S&P 500 does well during the year, the investor will receive their $10 per unit back, plus an extra amount per unit that is calculated based on the S&P 500's return during the year.

Articles Of Interest

  1.

    Is Your Mutual Fund Safe?

    You might be carrying more risk than you think if your fund invests in derivatives.

  2. How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.

  3. Principal-Protected Notes: Hedge Funds For Everyday Investors

    PPNs guarantee to return at least 100% of the original investment and have the potential to return much more.

  4. What is the difference between hedging and speculation?

    Hedging involves taking an offsetting position in a derivative in order to balance any gains and losses to the underlying asset. Hedging attempts to eliminate the volatility associated with the ...

  5. Why are options very active when they are at the money?

    Stock options, whether they are put or call options, can become very active when they are at the money. In the money options refer to when the strike price of a call option is below the market ...

  6. Behavioral Bias - Cognitive Vs. Emotional Bias In Investing

    We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect.

  7. Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.

  8. Why Your Pension Plan Has Sovereign Debt In It

    One type of security pensions tend to invest in is sovereign debt, or debt issued by a government.

  9. Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.

  10. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  2. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  3. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  4. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  5. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  6. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
Trading Center