The technology is perfect for brokerage firms who license the technology, giving their financial advisors a highly visual tool to develop structured investment portfolios. Begin by picking a stock, and the length of time you wish to own it. The program accesses that stock’s historical performance data.
Then things get interesting. Using sliders, the investor customizes the level of downside protection they wish to have. The more protection they want, the more of a premium they pay.
Take a stock currently trading at $191.30. The investor decides they want downside protection of the final share price plus $70, meaning if the stock trades anywhere between $121.30 and $191.30, the investor suffers no loss. Should the stock trade below $121.30, the investor only loses the amount between $121.30 and the final price.
Like any insurance, one has to pay a premium, in this case 8.94 percent, making the stock’s price $208.41. In exchange for that protection, the investor caps their upside.
“If the user wanted to to this themselves they’d need good knowledge,” Mr. Sood said. “We take care of this.”
There are two main challenges in bringing this solution to the masses, Mr. Sood said. The first is to make the process as simple as possible for novice investors. The second is infrastructure costs. Traditional infrastructure is expensive, so it is only feasible to employ it on a large scale and at large costs. That leaves few logical players.
“Technology can solve both of these problems,” Mr. Sood said. “Use the front end to make it simple and easy to understand, and automate the back end.”