Why did you blow up?3 minutes to understand the snowball product!

Recently, a notice about brokerages to Xueqiu customers

It's crazy in the industry.

Let's pat our heads and simulate the general plot:

So what the hell is

What about snowball products, why do they have no principal and interest?

Let's review it today:

The Xueqiu product is actually a wealth management investment product.

The reason why it is called a "snowball" is because the income of this wealth management product can be like a snowball, as long as the market does not fall like an avalanche, the longer it is held, the higher the profit may be.

The snowball product is a kind of income certificate issued by a brokerage, and investors pay to buy it to win returns.

The term is usually 12 months or 24 months.

Brokers and investors will agree on a reference annualized rate of return.

For example, 15%.

The indicative rate of return can only be obtained if certain conditions are met. It is uncertain how much the investor will get in the end, and the performance of the "monkey" determines the investor's return.

The monkey is the "target" of the snowball product hook,

The "target" can be a stock or an index, such as the CSI 500 Index.

Stocks or indices will fluctuate up and down, just like a monkey can go up and down.

The investor's income is based on the rise and fall of the linked "target".

It's a bit like a "bet" between a broker and an investor.

How to "gamble"?

The starting point for investors to buy snowball products is that they believe that the risk of the "target" falling is small.

The snowball product is equivalent to the investor selling a put option to the broker.

But this option is a bit special, we call it a barrier option.

Monkeys can't go up to the sky and into the earth at will, we have to set up a little obstacle for monkeys-

The starting point of the "monkey" flight, we call it the "opening price".

The above hand is called the "upper band", and the price is slightly higher than the opening price, for example, the upper band price is 103% of the initial price;

The lower hand is called the "lower band", and the price is generally significantly lower than the opening price, such as the lower price at 80% of the opening price.

The upper and lower bands are set in order to trigger the rules when the price of the "underlying" reaches a certain level within a certain time frame.

The "monkey" shuttles between the upper and lower orbits, and let's take a look at how different flight routes affect investors' returns:

/1/ Shock City

The monkey is constantly flying between the two hands, that is, the underlying stock or index does not rise or fall much, and oscillates up and down.

In this case, when the contract expires, the investor can get an agreed reference annualized rate of return, such as 15%.

/2/ Cattle City

In a bullish market, the monkey breaks through the upper band on a given observation day, which is called knockout.

The upper band price can also be referred to as a "knock-out price".

For example, if a "knock-out" occurs 6 months after the contract is established, then the snowball product needs to be terminated early, and the investor will receive interest up to the early maturity date.

The knock-out price is a price barrier for the early termination of the contract.

Although investors can also get interest according to the reference annualized rate of return at this time, if it is knocked out too quickly and does not earn interest for a few days, it is not good news for investors.

/3/ City of Kuma

In a downtrend, the monkey breaks through the lower band on a given observation day, which is called knock-in.

The lower band price can also be referred to as the "knock-in price".

If the market is volatile, the underlying price falls sharply, and a knock-in occurs, investors may lose money when the contract expires.

But after knock-in, before the expiration of the contract, it is not completely impossible to salvage.

We can divide it into several situations:

1. A small rebound

After the knock-in, the monkey struggled to fly up, but until the contract expired, the monkey price was lower than the opening price.

At this time, the investor needs to bear the loss,

The loss is equal to the difference between the expiration price and the opening price.

2. Moderate rebound

After knocking in, the monkey is also trying to fly up, and the expiration is finally above the price at the beginning of the expiration.

And none of the knockouts occurred during this period,

At this time, the investor can only get back the principal, and there is no interest.

3. A sharp rebound

After the knock-in, the monkey finally broke through the upper band on the designated observation day after unremitting efforts and achieved knock-out.

At this time, the snowball product is still over, and investors can still get an annualized reference rate of return.

It can be seen that whether investors can make a profit depends on the knock-out and knock-in situation.

But the attentive reader will notice that we have a concept of "designated observation day" when confirming knock-out and knock-in.

The broker determines the knock-in and knock-out situation only on the observation day.

Monkeys are only effective if they knock out or knock in on observation days.

On non-observation days, no matter how hard the monkey jumps up and down, it is not considered to be knocked out or knocked in.

Observation days can be divided into "knock-out observation days" and "knock-in observation days".

The knock-out observation day is generally once a month,

Knock-in observation days are more frequent, such as daily.

In conclusion, the advantage of snowball products is that they add a layer of buffer space for investment.

Losses only occur when the market goes all the way down and there is no turning back, providing a degree of downside protection.

However, after all, snowball products belong to a class of high-risk products, and it is impossible to make a steady profit without losing money.

Therefore, not everyone can invest in Xueqiu products, and individual purchases need to meet the requirements of qualified investors.

Brokers use Delta hedging to make profits, and we will talk about Delta hedging when we have the opportunity later.

You just need to simply understand that the brokerage took the money, and it was not put in the safe, but went to the secondary market to open a position and buy low and sell high.

At last

Let's summarize today's content:

，

For Snowball products,

Regulators are required to pay attention to the suitability of their clients, emphasizing the risky side of the product while paying attention to the risk exposure.

After all, high-risk snowball products are not suitable for the average individual investor.