Snowball option products usually refer to snowball options and financial products containing snowball options. Snowball options are a type of exotic options that are relatively common in the international market. Their essence is that investors sell put options with trigger conditions to brokers. Financial products containing snowball options generally feature high coupon rates but are not capital guaranteed. The income of snowball structured products depends on the fluctuation range of the underlying price. At present, the most common targets for snowball structured products in the domestic market are the CSI 500 Index and the CSI 1000 Index.
How to buy snowball options?
Snowball options are a type of over-the-counter options. The trading method can only be conducted offline through inquiry with brokers, which is similar to the trading method of over-the-counter stock options.
The following are the contract terms of the CSI 500 Snowball Option
Linked target: involving major indices, individual stocks or individual stock combinations.
Knock-out conditions: Snowball products regularly observe the underlying price. Once the underlying price is higher than the knock-out price, a knock-out event will be triggered, causing the product to be terminated immediately.
Knock-in condition: Involves regular observation of the underlying price, but in this case, once the underlying price is lower than the knock-in price, a knock-in event will be triggered.
At this time, investors begin to face the risk of underlying price fluctuations. If the product fails to be knocked out until expiration, investors will need to bear the risk of principal loss, which may even be a larger principal loss. Once knocked in, the product will continue to function until it expires or until a knockout is triggered.
Observation day: divided into knock-out observation day and knock-in observation day. Knock-out observation days are usually once a month, while knock-in observation days are every trading day. On these observation days, the underlying price is compared with the agreed knock-out or knock-in price to determine whether the corresponding event is triggered.
Yield: It is the annualized rate of return of the final coupon obtained when the Snowball product is terminated or is not knocked in until maturity. The rate of return is related to market volatility. Snowball products with different targets, different time points, different knock-in and knock-out prices, and different maturities will have different returns.
Among them, the knock-in and knock-out prices require special attention:
1. Knock-out price: When the price of the underlying asset exceeds the knock-out price on the observation day, it means that we buy The snowball product will end early and investors can ensure profits.
2. Knock-in price: The knock-in price has a safety cushion, but once it falls below this protective layer, the safety cushion will become ineffective. If the knock-out condition is not triggered on the expiration date, investors will need to bear the risk of principal loss.
Snowball options are suitable for different market environments:
1. Shocking markets: Snowball products perform best in volatile markets and can obtain high annualized coupons. When the index fluctuates little, buying Snowball products is expected to get the maximum profit.
2. Rising market: In a rising market, Snowball products can trigger knock-out conditions quickly while providing high fixed annualized coupons. However, due to the shorter duration, actual returns may not perform as well as the index.
3. Falling market: When the market falls and the knock-in condition is triggered, the performance of the Snowball product is consistent with the index trend. If it fails to rebound to the knockout point on the expiration date, investors may face substantial losses.
As an option product, Snowball has the following important characteristics:
1. Snowball products provide downside protection within a certain range of decline, similar to a type of exotic options. Fixed income products. From an options perspective, the Snowball product is similar to a special type of put option.
2. Snowball products are designed to provide investors with a certain degree of downside protection while expressing a mildly bullish view of the market. This design allows Snowball to achieve greater profits when the market stabilizes. Just like a snowball, as long as there are no major fluctuations in the market, Snowball's profits will continue to increase.
3. In Snowball products, the issuer is equivalent to the buyer of the put option, paying coupons (option fees) to obtain downside protection; while the buyer is equivalent to the seller of the put option, Earning coupons comes with downside risk.
In summary, based on past performance, the non-coverage Snowball product*** has four profit and loss situations, including 3 profit and 1 loss, with a winning rate of 75%.
Risk warning:
1. Non-fixed income products: Please be sure to note that snowball products and fixed income products cannot be confused, let alone regarded as "guaranteed profits without loss" financial products. Snowball products have a certain probability of causing a large loss of principal.
2. Treat promotional information with caution: Do not blindly believe in promotional slogans on the Internet, media, etc. Before purchasing a Snowball product, carefully understand its revenue structure and related terms, and conduct an in-depth study of the conditions for triggering knock-out and knock-in events. Make sure you truly understand what you are purchasing. At the same time, we should carefully assess our personal risk tolerance and confirm whether we have sufficient ability to cope with the possible principal loss caused by purchasing Snowball products.
4. Understand the target and price trend: Investors must have a certain understanding of the target linked to the snowball and have a certain judgment on its future price trend. If the underlying price rises sharply in the future, investing in Snowball products may result in missing out on the high returns brought about by the increase in the underlying price; conversely, if the underlying price continues to decline in the future, investing in Snowball products may cause investors to ultimately bear the principal caused by the decline in the underlying price. loss.