Chapter 21: CH19 - 685 Billion
Recently, the Korean stock market has been driven by explosive growth in IT stocks. Both institutional investors and foreigners were increasing their target prices across the board and taking long positions.
Samsung Electronics was breaking record highs and setting new all-time highs, and the stock market was following suit.
Concerns started to arise that the market was overheated compared to the real economy, and there were expectations of a correction due to profit-taking.
The sudden announcement of the discontinuation of the L6 at this point was like pouring cold water into a boiling furnace.
Optimistic views faded away, replaced by pessimism. Not only Seosung Electronics but also related and unrelated stocks plummeted.
Individual investors, overwhelmed by fear, started selling off their stocks, while foreign investors who had been sellers early in the session increased their selling instead of turning to buying.
In the later part of the trading session, institutions started buying, and even the pension funds joined in, but it was not enough to stop the downward trend.
The Korea Exchange, as well as securities, asset management, and fund companies, all found themselves in chaos.
This turmoil also affected KYB Investment Securities, one of the largest securities firms in the country.
Samsung Electronics hitting the lower limit was the first time since the 2008 financial crisis. However, the situations then and now were significantly different.
During the financial crisis, not only Samsung Electronics but also various global companies were experiencing steep declines of tens of percentage points.
Most notably, back then, the daily price limit was restricted to 15%. However, it has been expanded to 30% today.
This means that Samsung Electronics dropping by 30% is unprecedented in history.
Following the release of L6, Seosung Electronics had been on an upward trend, and it was anticipated that its stock price would continue to rise, leading pension funds, funds, and securities firms to hold a significant amount of Seosung Electronics shares.
No one foresaw such a situation.
Park Jong-il, the executive director in charge of securities at KYB Investment Securities, loosened his tie as he sat down at his desk. The graph on his monitor was frozen.
Trading had been suspended due to sidecar activation. While it seemed like the storm had subsided momentarily, a larger aftermath would hit once trading resumed.
The cell phone that had been ringing since before the market opened was still ringing incessantly. It was all calls and complaints from big clients.
Unable to attend to each call as usual, it had been set to silent for a long time.
Knock, knock!
With a knock, Manager Kim Woong-yong entered.
"Have you found it, Director Park?"
"Have you calculated the loss on the put options?"
"We are currently assessing. Depending on the event, but KOSPI200 put options are at several hundred times level and…"
"What about Samsung Electronics put options?"
Manager Kim Woong-yong replied with a bowed head, "It's over a thousand times."
Director Park Jong-il closed his eyes tightly.
He had already anticipated it, but hearing it firsthand made him feel distant and numb.
Samsung Electronics suffered a loss of 30% in spot prices after hitting the lower limit, but the problem lay in the derivatives.
Until then, put options were insignificant, and call options were within the exercise range.
However, with the sudden announcement, the situation completely reversed. All call options were out of the exercise range, while all put options became exercisable.
One might think it's a good thing, but the exercise price for call options was not significant. On the other hand, the exercise price for put options skyrocketed to several hundred times more than the issue price.
The extent of the loss was unfathomable.
Hundreds of billions? Thousands of billions?
The derivatives market was essentially where blind money-grabbing took place for small investors. Small investors aiming for a jackpot were simply giving money to financial institutions.
But now, it had unexpectedly turned into a boomerang.
All securities firms that issued put options would find it difficult to avoid losses this quarter. That was why stock prices of securities were already plummeting by more than 10%.
Perhaps some small to medium-sized financial institutions will find it difficult to avoid bankruptcy.
Manager Park Jong-il gave instructions.
"Check the status of derivatives, find out how much ELWs and put option payments are, check the issued ELS knock-in levels, and find a way to minimize losses on options at expiration."
"Understood."
Even after the conversation ended, Team Leader Kim Woon-yong did not leave the room.
When Manager Park Jong-il looked at him, he cautiously spoke up.
"There is something I'd like to mention."
"What is it?"
"I'm not entirely sure, but it seems like before the incident occurred, there was heavy buying of Samsung Electronics put options on the Golden Gate side."
"What?"
Upon hearing this, Manager Park Jong-il felt a shock akin to being hit on the head with a hammer.
What could this possibly mean?
"Are you suggesting that Golden Gate had prior information and bought these options?"
Kim Woon-yong shook his head.
"At first, I thought so too, but it doesn't seem likely. Golden Gate also suffered significant losses from this incident."
Golden Gate had also issued various put options based on the KOSPI 200 and Samsung Electronics. They, too, would have to pay hundreds of times the issuance value.
"If they had insider information, they would have sold futures and spot contracts when buying put options, but there was no such movement."
If Golden Gate had obtained information faster than others, they would have disposed of all their futures and spot contracts when buying put options. They weren't sitting still to just overturn their losses.
"So?"
"It seems that a specific corporation acquired through Golden Gate."
However one chooses to invest, it's up to them.
However, it's a bit strange that it's not Jisoo, but someone focused on buying specific stock put options.
If the predictions turned out right, it would be fine, but if they were wrong, that money would have entirely gone to the issuing companies.
Unless you knew the information in advance…
If this was due to insider trading, it's usually a big problem.
Director Park Jong-il gave instructions.
"Find out who it is. Also, confirm how they obtained the information."
"Understood."
Team leader Kim Woon-yong turned and left the room. Only one minute remained until the trading suspension was lifted.
Director Park Jong-il muttered while looking at his watch.
"Who on earth could it be?"
***
Staring at the falling stock prices, Taek-gyu and I were speechless.
Both the KOSPI and KOSDAQ indices, which were hitting record highs, had rolled back several months.
Samsung Electronics, which hit a record high of 1,797,000 won the day before, suddenly dropped to 1,258,000 won.
It was below its 52-week low.
When we shorted and bought put options, our average price was 1.6 million won.
We not only recovered our losses from shorting at once but also made over 20% profit. And it was an understatement to call the put options a huge success.
Options that were worth almost nothing until yesterday were now all exercisable.
Some had increased hundreds of times, while others had risen more than a thousand times.
Of course, this is in comparison to when it crashed. Looking at our purchase prices, it's much lower.
Stocks aren't a zero-sum game.
In an open market, everyone can either profit together or incur losses together.
However, short selling and options trading are structurally linked in a way that someone's loss always connects to someone else's gain.
What was a disaster for everyone turned out to be a blessing for us.
In stock communities, whispers started to emerge:
– "Having a meetup at Hangang today."
– "Recruiting for a bungee jump from Mapo Bridge."
– "This feels like hell for ants, doesn't it?"
– "If the sidecar opens, will it drop even more?"
– "Ah! I wish this were a dream."
– "For now, we must go after Im Jin-yong first."
– "Wrap your whole body in L6 and rush to Seosung Electronics' Gangnam building!"
– "I want to throw L6 at Jo Dong-jun's face."
– "If we resell the collected L6 to IS, can we reduce the loss a bit?"
On the other hand, very few investors who invested in inverse ETFs or put options erupted into cheers:
– "Bought Leveraged Inverse ETF yesterday, up by +13.8% in just one day!"
– "KOSPI200 Put Option 270 times leverage!"
– "It's almost like a once-in-a-decade put party. I lived waiting for this day."
– "How much would it be if I had Seosung Electronics' put option?"
– "Thank you, Vice Chairman Im Jin-yong and President Jo Dong-jun. Thanks to you, I recovered all the money I lost from stock trading over the past 20 years in just one day."
– "The put guys must be all smiles today. Haha!"
– "I'm the Put Man who caught Seosung Electronics' put. Going to the Lamborghini store today and selecting an Aventador alongside my foot picture for the proofshot. Whoosh~!"
Taek-gyu blinked his eyes and asked, "Is this a true story?"
The situation is unbelievable, and I myself feel the same way.
I wished so desperately for things to turn out this way, but when it actually happened, it didn't feel real. My head was spinning as if I were dreaming.
"It can't be a dream."
Taek-gyu shouted loudly, holding both of my arms.
"Wow! We are rich now!"
I burst into laughter watching Taek-gyu cheer.
"Actually, you were always rich."
But now, a billionaire became a multi-billionaire.
Taek-gyu pulled me into a tight hug.
"I love you, buddy!"
Normally, I would have pushed him away, questioning what guys were doing, but…
I hugged Taek-gyu back and shouted.
"We did it!"
The previous day, Samsung Electronics closed trading at the limit down, and the next day it opened with a 2.7% decrease, starting at 1,224,000 won.
Fortunately, there was a rebound in buying momentum, and it managed to recover with a 2.4% increase to close at 1,288,000 won.
The market, which showed signs of panic the previous day, barely regained stability with a 0.95% rise in the index.
The next day was the option expiration date.
Samsung Electronics announced through the media a refund policy and an exchange program, revealing an early launch of NT6, a derivative model of L6, to minimize the impact of discontinuing L6.
With the support of institutions and pension funds buying, the Samsung Electronics stock price on the option expiration date rose by 6.6% to 1,373,000 won, and both the KOSPI and KOSDAQ rose by over 2%.
The prices of the dollar, gold, and oil all fell, showing stability in the financial markets.
***
From the moment Samsung Electronics hit the lower limit, we embarked on options selling. However, the put options had already skyrocketed ridiculously, reaching a point where selling was impossible in the market.
Finally, the option's expiration date arrived. We liquidated our short positions and secured profits.
The final rate of return is 5,170 percent.
[685,000,000,000]
With profits exceeding 50 times the investment capital, our initial 13 billion won investment swelled to 685 billion won.
TL/n - That's a lot of zero's
Long Positions: This refers to buying stocks or other financial instruments with the expectation that their price will rise. Investors who take long positions profit if the asset increases in value.
Overheated Market: This describes a market that has risen too quickly and may be due for a correction. An overheated market can lead to inflated asset prices not supported by underlying economic fundamentals.
Correction: A market correction is a decline of 10% or more in the price of a stock or index from its recent peak. Corrections are typically seen as a natural part of market cycles.
Put Options: These are financial contracts that give the owner the right, but not the obligation, to sell a stock at a predetermined price before a specific date. They are often used to hedge against declines in stock prices or to speculate on downward price movements.
Call Options: These contracts give the owner the right to buy a stock at a set price before a certain date. They are typically used if an investor expects the stock price to increase.
Sidecar: In the context of stock markets, a sidecar is a mechanism used to temporarily halt trading to prevent excessive volatility. It is often triggered when stock prices move too dramatically in a short period.
Derivatives: Financial instruments whose value is derived from the value of an underlying asset, such as options and futures contracts. Derivatives can be used for hedging or speculative purposes.
Exercise Price: The price at which an option can be exercised (i.e., the price at which the holder of the option can buy or sell the underlying asset).
ELWs (Equity Linked Warrants): Financial instruments that give the holder the right to buy or sell an underlying stock at a certain price before expiration. They are similar to options but are issued by financial institutions.
ELS (Equity-Linked Securities): Structured products linked to the performance of a basket of stocks or indices. They offer a fixed or variable return depending on the performance of the underlying assets.
Leverage: Using borrowed funds to increase the potential return on an investment. High leverage can lead to higher returns but also increases risk.
Inverse ETF: An exchange-traded fund designed to profit from a decline in the value of the underlying index or asset. These are often used as a hedge or for speculative purposes.
KOSPI200: A stock market index in South Korea, representing the 200 largest companies listed on the Korean Exchange.
Spot Prices: The current market price at which an asset can be bought or sold for immediate delivery.
Exercise Range: The price range within which an option can be exercised profitably.
***
You can read
[
Chaebol up to Chapter 55+
An Investor Who Sees Future up to Chapter 53+
Hollywood Actor up to Chapter 53+
Perfect Hero up to Chapter 56+
Devil's Idol up to Chapter 17+
Soar to Stardom up to Chapter 25+
]
all by supporting me at p@treon.com/inkbound (For only $5)
(replace @ = a)
Weekly Power Status
-- Power
Ranking 
-- Power
stone