UBS Note Tied to Yelp, Echoes Bullish Options

UBS AG sold $10 million of three-month notes tied to Inc. and Yelp Inc., after shares of both companies surged by at least 45 percent in the second half of last year.

The auto-callable securities, issued Jan. 8, yield 21 percent annually as long as neither company falls more than 35 percent from its initial stock price, according to a prospectus filed with the U.S. Securities and Exchange Commission. The Swiss bank will redeem the notes on any month when both stocks are above their starting value.

Investors can lose all their money if either of the shares plummet, according to the prospectus. UBS estimated the notes’ initial value at 97.7 cents on the dollar.

Yelp, the service for online restaurant and business reviews, is succeeding at getting advertisers to buy their promotions in most U.S. cities across many different industries, according to a report from JPMorgan Chase & Co. on Jan. 8. The company rose 98 percent to $68.95 in the second half of 2013, while, the biggest maker of customer-management software, climbed 45 percent to $55.19, according to data compiled by Bloomberg.

Options traders are betting on price gains in both of the San Francisco-based companies. Investors own 46 percent more bullish Yelp contracts than bearish ones, with 86,540 calls and 59,452 puts outstanding as of Jan. 14, Bloomberg data show.

Falling Volatility

Yelp’s implied volatility, the proxy for future share movement used to price equity derivatives, was 66.87 yesterday, down from about a one-year high of 74.14 in December, according to data compiled by Bloomberg on three-month contracts closest to the shares. The measure for was 34.06, down 18 percent from a peak in October.

Megan Stinson, a spokeswoman for UBS in New York, declined to comment.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts with values derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

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