I read a thread on another site about some six year index annuities called Structured Investment Options (SIO). They offer a variety of combinations of an upside cap with limited downside protection (DP) on various indexes like the Russell 2000, MSCI EAFE and S&P 500. The DP can be 10, 15 or 25% and the cap depends on the amount of DP that you choose (the higher the protection, the lower the cap). Here's one of the companies offering these:
If you choose the annual segment on the Russell 2000 (IWM) with 10% DP, the cap is 10%. That means that you are protected from the first 10% of drop. If the index rises more than 10% in the year, you only get 10%. If it rises but rises less than 10%, you get that amount of gain. At the end of the year, everything resets.
For example, invest 100k. The profit cap is 110k and you lose nothing between $90k and $100k. You bear all of the loss below $90k. So if IWM rises 15% in year one, you net 10% and the position is worth $110k. If it rises 2% then the position is worth $102k. If it drops 13% then you only lose 3% and you are worth $97k.
Whatever the above ending value for year one is becomes the new starting value for year two. If IWM rises more than 10% in year one, for year two, your new cost basis is $110k and the new DP and cap levels are $99k and $121k. This continues for a total of 6 years
This can be reasonably duplicated synthetically by buying the index, selling a covered call 10% OTM combined with a bearish vertical spread 10% wide. The advantage with the synthetic would be that you can select your time frame (less than a year if so inclined), you have control of your money and can exit any time you want. You don't get tied up for 6 years.
Does anyone have any experience with these products or insight into the synthetic duplication of them?