Are also known in the market as equity-linked notes, and are essentially bonds that are linked to an index or a series of stocks.
MITTS were originally created by Merrill Lynch, and are traded on the New York Stock Exchange.
MITTS investments have been designed for two things:
1) limit downside risk
2) producing a return that's tied to the performance of a group of stocks.
The real kicker with the MITTS is that under the terms of the investment, investors are guaranteed to get their money back come maturity time.
The balance of the funds, go into a long-term index option that locks in the increase in the index over the life of the security.
The net result is guaranteed principal capital with unlimited profit potential on the upside.
This makes these funds great investments from options strategy perspective. Thus, in order to price these opportunities accordingly, you should use options pricing models to factor in the potential in the fund.
These models derive much of their pricing information from the underlying variability of the asset in question, such as a stock market index or a sub-index.
