A-shares rose a little yesterday, and after a lot of positive news, Chinese stocks also strengthened a little. It is gratifying. The US stock market was thriving in the first half, but it calmed down in the second half. After all, capitalism will eventually perish.
The news about Snowball has been all over the news these days. I have also read a lot of information and feel that it is necessary to talk about the past and present of this thing, especially that there was a more destructive ancestor of this thing in Hong Kong back then. I want to share it with you. Since I think the original text is very clear, I will try not to delete or modify it, but I will give some comments in brackets. It is convenient for everyone to understand.
In 2007, when the global stock market was booming, the private banking departments of some large banks in Hong Kong began to launch Accumulator products to some high-end customers (usually more than 1 million US dollars, so-called mature/professional investors). When the market is good, stock volatility is not large, and investors often have the illusion of "easy money". However, in 2008, when the market was extremely turbulent, many investors lost all the funds in their accounts in just a few months, and even lost all the assets accumulated for decades. Accumulator has become a scam product that I kill you later.
The risk of this product comes from the capped return, that is, the contract will automatically terminate when the stock price reaches a pre-set price; but the loss is not guaranteed, that is, after the stock falls below the strike price, the stock must be doubled (or more) every day, and for a period of time until the end of the contract, the customer must continue to bear the loss of the stock price. (This type of product is extremely risky.)
PS: This is a bit like our option sellers, who double up and sell more PUTs after receiving the goods to make up for their losses. However, this forced additional selling operation is written in and enforced, which is speechless.
Let me put it this way, if I hold a large number of shares in a company and I want to reduce my holdings in the future, I am absolutely willing to sign a delivery contract with a pair of leeks at a high price. This is too cool.
This type of Accumulator contract generally has the following terms:
1. Linked to a financial product (Underlying Security), usually a foreign currency, or stocks. Stocks are usually large-cap blue-chip stocks with active trading.
2. Daily Accrual - number of shares or amount.
3. Strike Price, which is the price at which the issuer (bank maker) sells shares to investors.
4. Settlement Dates refers to the date when the stock changes hands.
5. Knock Out Price: When the market price of the linked asset is higher than the Knock Out Price, the contract will automatically terminate. Usually the Knock Out Price is about 3-5% higher than the market price at the time of signing the contract. This clause is actually the "self-protection or stop loss" clause of the bookmaker.
PS: If the stock price rises sharply, the brokerage firm will stop loss; if the stock price falls sharply, you will double your selling and gamble your life...
6. Accumulating/Leverage Ratio. Usually, the number of options exercised in each round will be a multiple of the previous round, such as two, four, eight, or sixteen times. This clause accelerates the investor's position loss (or death). It is just the opposite of clause 5. The design of clauses 5 and 6 is a bit like a mousetrap, forming a combined force of attacking from both sides.
7. Discount price (Discount), the discount is usually 15-20%. This is actually more like a bait clause, misleading investors into thinking they are getting a bargain.
For example, an Accumulator contract linked to HSBC Holdings (0005hk) has a threshold amount of HK$5 million and a contract term of 1 year or 250 trading days. Assuming that the price of HSBC Holdings is HK$140 on the day of signing, the knock-out price is HK$145, and the strike price is HK$112, which is a 20% drop in the stock price. A 15% discount is equivalent to HK$120. If HSBC's stock price fluctuates between HK$140 and HK$120 within a year, investors can buy 400 shares every day at a discount price of HK$120, and can buy 100,000 shares (400 X 250 = 100,0000) throughout the year, earning HK$20 per share every day, and can earn HK$2 million (100,000 X 20) in a year. The annual return rate of HK$5 million is 40%.
PS: This section is a bit complicated, and the data may not be particularly accurate. You can simplify it to mean that you sell the doomsday PUT naked every day, so the single-day discount will bring huge profits.
If HSBC's share price falls below HK$112, triggering the delivery mechanism, investors will need to double their positions, that is, the position will reach 200,000 shares, and then double their positions for every 20% drop. In March this year, HSBC's share price fell to HK$33 (March 9). Investors of this contract must double, 4, 8, 16, 32, 64 and 128 times at HK$112, HK$90, HK$81, HK$65, HK$52, HK$42 and HK$34 respectively. Doubling the position means that the margin of the contract will also increase proportionally. If the investor refuses the margin call, the bank will force the position to be closed (Cut Margin) and recover the losses exceeding the margin account.
If the investor refuses the margin call, the bank will force the position to be closed, resulting in a loss of HK$40 per share and a total loss of HK$8 million (200,000 X 40). In addition to the loss of HK$5 million in principal, the investor also owes the bank HK$3 million. Last year, DBS Bank in Hong Kong sued two clients to recover the lost money. The female investor in the CCTV report was facing the embarrassment of losing HK$80 million and owing HK$90 million. The investment account of another lawyer investor increased from the initial one million to HK$21 million with continuous increase in positions. When facing a margin call, clients with funds are unwilling to accept stop loss and exit, and on the other hand, they are lucky (expecting a rebound), and increasing positions has become the choice of most people. This has caused the hole to get bigger and bigger. CITIC Pacific's initial loss was only HK$800 million, but with continuous increase in positions, the loss expanded to HK$15.5 billion.
PS: It can be seen here that this product can still be liquidated··A typical R5-level product··It is better to use Mosaic Circle, where KYC will not allow you to be liquidated by Iron Fist···
The Chinese name of this thing is cumulative option. For retail investors who don’t know how to control leverage, it is a seemingly good bargain hunting tool. In reality, it means that they have handed their entire fortune to the market and are waiting for margin call.
Therefore, the risk is always there, but most of the time, your own life is destroyed by your own actions.
This is also the reason why I want to start holding offline courses this year, hoping to give investors more risk warnings and less macro-clichés and empty talk. After all, one more risk education can reduce one permanent net value loss.
After all, when people reach middle age and the economy is in a downturn, wealth cannot be restarted like in Dota.
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