A few days ago, several cases of snowball knock-in leading to liquidation have attracted great attention, making this financial derivative highly controversial.
Ordinary investors are not familiar with Xueqiu, and are prone to three misunderstandings:
First, the snowball product can obtain coupon income, which is mistakenly thought to be a low-risk fixed income product, but it is actually a structured option, and the profit and loss is not only affected by the performance of the index, but also by the observation date and period;
Second, snowball products need to pay margin, and the leverage of funds leveraged by individual products can be as high as 4 times, but not all snowball products are structured with leverage, as long as leverage is not used, the loss is limited to the index ** range;
Third, the probability of making a profit in a snowball product is theoretically greater than 50%, but the high probability is to make a small amount of money, and the small probability is to lose a lot of money, and the probability of the highest absolute return is extremely small.
Brokerage China reporters learned that the coupon of some newly issued snowball products has been as high as 45%, while most of the previous coupons were about 15%-25%, but the maturity income of the product is only 35% and no leverage is set, which means that the worst outcome is to only bear the actual loss of the index**. Snowball products appear in the form of over-the-counter options and income certificates, with an estimated stock size of about 300 billion, and the expiration time is mainly concentrated in March and August this year.
Three misunderstandings of Xueqiu's product cognition.
Last week, a large number of cases of knock-in liquidation of snowball structured products attracted market attention, and to some extent, it also affected the fall limit of many IM contracts. Such derivatives should not be "demonized", and for individual investors, the real culprit that leads to loss of money is leverage, not snowball-structured products.
The reason is that ordinary investors' perception of snowball products stays on individual liquidation cases, and the evaluation is also polarized, which is prone to the following three misunderstandings:
The first misconception is that snowball products can receive coupon income, which makes investors mistakenly think that they are low-risk fixed income products, but they are actually structured options. In addition to the performance of the index-linked index (usually CSI 1000 and CSI 500), the profit and loss is also affected by the observation date and period, the snowball product is generally two years, the lock-up period is 3 months, and there are 22 observation days, and only the observation date may trigger the knock-in and knock-out.
The so-called coupon income, that is, the annualized rate of return agreed upon by the snowball product, usually there are three possibilities for obtaining coupon income in the four profit and loss scenarios, namely: the index ** is directly knocked out, and the principal and coupon can be obtained; If the index is knocked in first, and then knocked out on a certain observation day, the product is terminated early, and the principal and coupon can also be obtained; Index**, which has not been knocked in or knocked out for two years, receives principal and coupon due.
It is worth noting that the so-called coupon income is calculated annually, for example, the product is knocked out in the 6th month, assuming that the coupon is 20% annualized, then the coupon income calculated according to the profit of 6 months is 10%, and the profit and loss assumption does not take into account the management fee, custody fee and other expenses, if you consider 1With a rate of around 5%, as well as related taxes and fees, the absolute benefit is not that high.
The second misconception is that snowball products need to pay margin, and the leverage of funds leveraged by individual products like the previously closed 2 million "Mr. Tang" can be as high as 4 times, so investors may think that all snowball products have their own leverage, but in fact, only a few products are embedded with leverage. As long as leverage is not used, there is only one situation for loss: that is, the index ** is knocked in, never knocked out before expiration, and finally bears the actual loss and related expenses of the index**.
The third misconception is that the probability of making a profit in a snowball product is theoretically greater than 50%, so it is believed that the winning probability is larger, but the high probability is to make a small amount of money, the small probability is to lose a lot of money, and the probability of the highest absolute return is extremely small. Three of the above four profit and loss scenarios can be profitable, and the highest profit is the index small **, the product has never been knocked in or knocked out, and the full coupon income can be obtained at the end of the existence, but this probability is extremely small. In the case of a loss, the probability is much greater, and the knock-in setting is 20%, and there is no lower limit on the amplitude of the extreme index.
The maturity risk of existing products is controllable.
At present, the main targets of the domestic snowball products are the CSI 500 and CSI 1000 indexes, which are generally hedged through stock indexes to improve the efficiency of capital utilization and obtain a certain discount. When the snowball product is issued in large quantities, the bullish power of the stock index** also increases; When the expiration of the snowball knock-in and non-knock-out ends, it is necessary to close the long position** for redemption, which generates greater selling pressure.
Previously, the snowball structure mainly existed in the form of income certificates and over-the-counter options: at the end of July 2023, the scale of the company's existing income certificates was 4299200 million yuan, of which the proportion of floating income certificates in the new income certificates issued from January to July is basically more than 40%, assuming that 50% of the floating income certificates are snowball structure, the survival scale of the snowball structure income certificates is about 859900 million yuan. At the end of July 2023, the notional principal of the company's stock index OTC options was 80489.5 billion yuan, assuming that 30% of it is a snowball structure, the notional principal size of the existing off-site options is about 2414700 million yuan.
Xueqiu is an over-the-counter transaction and lacks public data, according to the Guojin Macro Zhao Wei team, the stock size of the snowball structure is about 3274600 million. The expiration pressure of the snowball structure linked to the CSI 500 is mainly concentrated in February and early March 2024, while the snowball structure of the CSI 1000 is concentrated in August.
Coupon up to 45% on new issues
It is worth noting that the volatility of the CSI 500 and CSI 1000 indices still exists recently, and the basis discount of IC and IM contracts has not narrowed, and the snowball structure products are still being issued, and ** is not low.
Brokerage China reporters learned that the coupon of some newly issued snowball products has been as high as 45%, while most of them were about 15%-25% before.
The underlying asset of the private placement product is a snowball structure OTC derivatives portfolio, linked to the 1000 index, and the annualized rate of return knocked out in the first year of the product setting is 4095%, the annualized rate of return knocked out in the second year is 5%, but the dividend coupon at maturity is the annualized rate of return of 35%。In this way, if the snowball is not knocked in and out of the small **, the yield is not the highest, and the profit and loss situation is more complex than the classic snowball structure.
It is understood that the reason why such a high coupon is set in two years is mainly due to the current discount situation and the product issuance environment, but the product does not set leverage, which means that the worst result is to only bear the actual loss of the index, so the risk level of the product is medium and high risk (R4).
As a derivative, the structure of snowball products is more complex than that of **, but most snowball products do not have leverage, that is, there is no liquidation or liquidation, only knock-in, knock-out four profit and loss scenarios, investors need to be vigilant in order to avoid losing their capital, what they need to be wary of is to use leverage carefully.
Editor-in-charge: Wang Lulu.
Proofreader: Tao Qian.
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