Deutsche Bank's Apple-linked bearish reverse convertibles seen as a play for contrarians

By Sheri Kasprzak

New York - Even though shares of Apple Inc. have jumped by leaps and bounds of the past month, Deutsche Bank AG, London Branch recently priced $3 million in 18.2% bearish reverse convertibles linked to the well-performing stock.

"I wouldn't necessarily call it odd," said one market insider of the Apple-linked bearish reverse convertibles.

"Some people just may be more pessimistic about that particular stock. It happens all the time. There are always contrarians out there so there will always be a market for bearish notes [reverse convertibles] linked to stocks that the majority of people think are doing fine."

Added the source, "I suppose their theory is, what goes up must come down sometime."

The one-year notes pay par unless the stock rises above the threshold of 125% of the initial share price during the life of the notes and finishes above the initial share price. Should that happen, the investors will lose proportional to any gains in the stock.

So far this October, Apple's stock has traded between $156.34 and $186.16.

Two big S&P 500 bear notes

In other news, both Morgan Stanley and JPMorgan Chase & Co. both priced $250 million in notes inversely linked to the S&P 500 index.

Morgan Stanley priced $250 million in Bear Market Performance Leveraged Upside Securities linked to the S&P 500.

Those 18-month notes pay par plus 350% of the absolute value of any index decline up to a maximum return of 46.2%, assuming the final index level is less than the initial level.

If the index increases by up to 7%, the payout will be par. Investors will lose 1% for each 1% index gain beyond 7%.

JPMorgan priced $250 million in zero-coupon bearish buffered returned enhanced notes linked inversely to the index.

Those notes pay par plus 3.5 times the absolute value of the return on the index, subject to a 45.5% maximum return, if the final level of the index is below the strike level, set at 1,521.75.

If the index gains above the strike level by 7% or less, investors receive par at maturity.

The investors will lose 1% for every 1% the index gains beyond the 7% strike level.

The final index level will equal the average of the index's closing levels on April 28, April 29 and April 30, 2009.

Citigroup plans notes linked to Citi Country Selection Index

Citigroup Funding Inc. is planning to price an offering of Strategic Market Access notes linked to the Citi Country Selection Index in November, according to a prospectus filed Monday with the Securities and Exchange Commission.

The index consists of five country-specific total return indexes selected monthly from a fixed universe of 22 country-specific total return indexes. The indexes include the Morgan Stanley Capital International Inc. Daily Total Return Net Indexes for Australia, Austria, Belgium, Brazil, Canada, France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, the Netherlands, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan and the United Kingdom. The equity index also includes the Standard & Poor's 500 Total Return Index for the United States.

The Citi Country index is rebalanced each month using a preset methodology that attempts to determine the five countries with equity markets that may be able to outperform the global equity market during the succeeding month.

The three-year notes are not principal protected.

The notes pay an amount equal to the net investment value of the notes on the final valuation date. The net investment value is equal to $9.725 on the pricing date. On any index business day thereafter, the product of $9.725 and the index return percentage.

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