"Alright, I'll talk about it. Futures and options are both derivatives. Do you know the difference between the two?"
"Approximately."
Senior Sang-yeop explained while drinking cola.
"Futures are a mutual promise to trade a certain product at a specific price at a specific time in the future."
The reason why you set a price and date at the present when you can trade in the future is because the price of the product is not constant.
If the price falls in the future, those who sell the product will lose money and those who buy it will make a profit. Conversely, when prices rise, sellers gain and buyers suffer losses.
Therefore, both sellers and buyers decide to trade first at a specific time and price in order to avoid large losses and gain an appropriate level of profit.
Therefore, the more volatile a product is, the more active futures trading is. Stocks and oil are representative examples.
"The concept of options is similar. The difference is that while futures involve trading in the future at the present time, options only sell the right to trade."
Options have an expiration date.
The right to buy a product at a set price on the expiration date is a call option, and the right to sell it is a put option.
"Futures have already been traded regardless of future price fluctuations. That's why you can't get bitten. However, options may or may not be traded depending on the price change on the expiration date."
Whether or not to exercise the right depends entirely on the buyer's will. On the expiration date, the buyer exercises the right if there is a gain, but does not exercise the right if there is a loss.
Therefore, the higher the possibility of realization, the higher the issue price, and the lower the possibility of realization, the cheaper the issue price.
"When a securities company or fund company issues an option, financial experts use all kinds of formulas to calculate the probability and rate of return. If you do it wrong, you could incur huge losses. One of the interesting things about options is that the gain of the option buyer is infinite, and the loss is limited to the purchase price. However, the option writer's gain is limited to the selling price, but the loss is infinite."
For example, let's assume that when a stock is worth 2 million won, there is a put option that can be sold for 1 million won on the expiration date.
Of course, there is little chance that the stock price will halve, and there is little chance that this put option will be exercised.
Therefore, the option issue price is extremely low.
However, on the expiration date, the stock price rose to 2.5 million won.
If you sell it in the market, you can sell it for 2.5 million won, but no crazy person would bother to exercise a put option and sell it for 1 million won.
Therefore, the option buyer gives up exercising his or her rights. At this time, the buyer's loss is limited to the option purchase price already paid, and the issuer gains the same amount.
This time, let's think about the opposite case.
What if an absurd situation occurred and the stock price became 100,000 won on the expiration date?
If sold in the market, the price is 100,000 won per share, but option buyers can exercise the right to sell for 1 million won.
You can make a profit of 900,000 won per share.
Of course, option buyers must exercise their rights, and the issuer must accept the exercise of those rights.
In this case, you might easily think that you only need to pay 900,000 won per share, but what if the issue price of this option was 100 won?
From the issuer's perspective, they have to pay 9,000 times as much for the rights they sold for 100 won. If the buyer buys this option worth 100 million won, the amount to be paid is 900 billion won.
Of course, this rarely happens.
but······.
Senior Sang-yeop said with a bitter smile.
"Good things don't happen, but bad things always happen. "Like the 9/11 terrorist attacks or the bankruptcy of Lehman Brothers."
Once something like that happens, the put option price instantly jumps hundreds of times, and the option issuer has to pay that amount.
During the financial crisis, the world's most powerful global IBs incurred astronomical losses due to the derivatives they issued and were forced to go bankrupt or request financial support from the government.
"What happens if the issuer goes bankrupt?"
"They have taken out insurance in case of a landslide, but what happens if the insurance company is the first to be buried when a landslide occurs?"
If the payer goes bankrupt, there is no way to receive it.
There are various regulations and margin systems to prevent such situations, but when the worst happens, there is no answer.
"But such a thing may only happen once every few years, but most of the time it ends with investment trusts and securities companies wiping out all the money that ants have buried in their noses."
After the rough explanation was over, stories that only those who had tried options would know were continued. I listened carefully and checked the important parts in my head.
After meeting in person and hearing the explanation, I feel like things I only knew in theory are being organized.
After finishing his story, senior Sang-yeop looked at me and asked.
"I would like to discourage you from asking for options if possible, but what exactly are you trying to do?"
I was about to elaborate, but decided to just be honest. This is because it bothered me to lie as a person receiving help.
"It's Seoseong Electronics."
"Is it Call or put?"
"Put."
Senior Sang-yeop looked surprised.
"why? "It's been going well since the launch of L6."
"That L6 will be discontinued."
"what?"
I told him that the phone Taek-gyu had purchased exploded and about explosion cases posted on the Internet.
Senior Sang-yeop asked as if he didn't understand.
"Is it just because of that? "Is there any other basis?"
Of course there is.
I just can't explain it here.
"I was just worried that if explosion incidents continue to occur, it might be discontinued. "This is not accurate information."
Senior Sang-yeop gave advice with a worried expression.
"be careful. "If you use options incorrectly, you'll get hit like I did."
"Alright."
We left the restaurant, said our goodbyes, and parted ways.
After senior Sang-yeop went first, we got into the car.
I asked Taekgyu.
"Did you hear? "He said we could lose it all in one hit, do you still want to do it?"
Taekkyu nodded and looked at me.
"of course. How about you?"
I grinned.
"Let's give it a try."
* * *
Investment and speculation are completely different.
In general, if it carries a risk that can be tolerated, it is called investment, and if it carries a risk that cannot be tolerated, it is called speculation.
But this is just a piece of paper.
The same act can be an investment for some, and speculation for others.
Buying wasteland by incurring unbearable debt is speculation.
But what if you know the urban development plan? So what if you knew that a new city would be built in the middle of nowhere?
We are also in a similar situation.
No one knows whether Seosung Electronics stock price will rise or fall tomorrow. However, we do know that the L6 will be discontinued.
If you are confident, rather than hoping for a fluke, it becomes an investment, not speculation.
Taekgyu summarized it simply.
"If we do this,it's investment? If others do it,its speculation?"
I nodded.
"That's the correct answer."
Everyone is against real estate speculation, but when you buy a house, you don't think it's just an investment or speculation.
I was worried about how to invest.
The easiest method is short selling. The expected rate of return is about 20 percent. Even if something goes wrong, the loss will only be at a few tens of percent. But the profits also stop at that level.
On the other hand, buying put options will result in returns of several to tens of times more if the prediction is correct. But in the worst case, we will lose all our investment.
"Is it low risk low return or high risk high return?"
The lower the risk, the lower the return, and the higher the risk, the higher the return.
After thinking for a while, I came to a conclusion.
"Let's buy about 70% of put options and short sell the rest."
Even if the rate of return decreased slightly, the worst situation had to be avoided.
* * *
Seosung Electronics' stock price, which was hovering around 1.4 million won, has soared sharply since the launch of L6 and is currently at around 1.6 million won.
This is because the L6 was evaluated as superior to Nphone in both design and performance, and its sales volume in the global market was over 40 percent compared to its predecessor.
It was predicted that the company would deliver record-high performance next quarter, and securities companies rushed to raise their target stock prices.
In fact, stock prices often move differently than expected. The reason is that it reflects future value, not current value.
In other words, the current stock price of Seosung Electronics has already been determined by reflecting future profits from L6.
But what if the L6 is discontinued?
Current profits as well as future profits will disappear.
It has risen by more than 10 percent since the release of L6, so it will definitely drop by this much. Considering the loss due to refunds, wouldn't the current stock price fall by at least 20%?
Taek-gyu said while looking at the internet site.
"I heard it exploded again."
"look."
The place where the incident occurred this time was not Korea, but the United States. Moreover, the problem was even more serious in that it was not charging.
Seosung Electronics said that they would first collect and investigate, and that all previous explosions were due to external shocks and that this would also be the case.
As explosion incidents continued not only in Korea but also abroad, foreign media also began to take interest.
There was not much time left now.
* * *
Until just a few years ago, Korea ranked first in the world in derivatives trading volume.
Although it is not to that extent now, it still boasts an overwhelming first place in terms of transaction amount compared to the market size.
The average daily options trading amount is 500 billion won, and futures trading amount is over 1 trillion won.
At this point, it's hard to tell whether it's a stock market or a gambling den.
Even now, in the futures and options market, a fierce battle is going on between those who want to turn their lives around in one fell swoop and issuers who are trying to make blind money.
I sat in front of the computer on behalf of Taek-gyu and accessed the home trading program.
The exercise price of put options varied. The higher the strike price, the more expensive the issue price was, and the lower the strike price, the cheaper the issue price.
Of the 13.8 billion in the account, 800 million is my money.
Taek-gyu said he would finance the entire investment by himself, but since we decided to invest together, I also have to show the same level of determination.
So I decided to pour in my share of 800 million won.
Crack!
I typed on the keyboard and bought Seosung Electronics put options.
No matter what the strike price is, if the stock price does not fall as expected, all of these options will be wasted.
I don't know if this is a good thing to do.
I shook off my doubts and continued tapping on the keyboard. However, while making the purchase, an unexpected problem arose.
"There isn't much of this in stock."
Derivatives are usually issued using indices such as KOSPI200 or HSCEI as the underlying asset, but options issued using stocks as the underlying asset were limited.
Although there were various types of options issued by Seoseong Electronics, there were not many options that suited our conditions.
I clicked my tongue.
"I didn't think of this."
This is the part that even senior Sang-yeop didn't tell me.
If you think about it, it was natural. Senior Sang-yeop would have thought that our funds would be around a few thousand to 100 million won at most.
He would never have imagined that I would have 13.8 billion won.
Currently, Seosung Electronics accounts for 19% of the exchange. One specific company accounts for nearly 20% of the exchange's market capitalization.
No matter how much Korea has achieved rapid growth centered on large corporations, the market capitalization exceeding 250 trillion is a shocking level.
In theory, if Seosung Electronics falls 10 percent, KOSPI will fall 2 percent.
"If it falls 20 percent, does that mean it will fall 4 percent?"
As its importance is large, the discontinuation of L6 will have a shock not only to Seosung Electronics but also to the stock market as a whole.
I also bought KOSPI200 put options. Fortunately, options issued using KOSPI200 as the underlying asset flooded the market.
Tiring tiring!
The contract was concluded with a notification sound. The option balance increased as the cash balance decreased.
Of the 13.8 billion won, 13 billion was poured into buying put options and short selling. The cash balance in the account was only 800 million won.
"Why don't you buy more?"
"800 million is for your living expenses."
Even if the worst happens, 800 million won will be enough to live on for a while.
It is already too late to turn back.
All that's left is to wait for the results.