Event: on January 13, 2022, we released the special report “OTC derivatives in the post snowball era”. Considering the great difference between derivatives and stock investment, this paper further disassembles OTC derivatives business, related products and various applicable scenarios through specific cases.
Financial OTC derivatives
Principal guaranteed financial products: the investment mode of fixed income + a small amount of derivatives makes it possible to strive for relatively high returns under the guarantee of principal security. We analyzed the three products of China Merchants Bank Co.Ltd(600036) and Huatai Securities Co.Ltd(601688) and showed the three mainstream models of embedded binary option, shark fin and bull / bear spread.
Classic snowballs and various variants: when the participation proportion of derivatives increases, principal guaranteed products will evolve into various snowballs. Through the back test, we found that the classic snowball has a high winning rate, but the holding time is short; Once the knock-in is triggered, investors are likely to bear losses and the range of losses is high. At present, there are at least 15 kinds of snowball and derivative snowball, including snowball on the bottom and snowball variation.
Leveraged financing and Hedging: through the case of an investment institution buying Hualan Biological Engineering Inc(002007) one month average European call option and Duan Yongping selling pinduoduo put option, this paper looks into how to use derivatives trading to do long with small, broad and low cost. Through the OTC derivatives service provided by China International Capital Corporation Limited(601995) for Yunnan Baiyao Group Co.Ltd(000538) share repurchase, analyze the hedging and discount repurchase functions of derivatives.
Cases of commodity OTC derivatives: benefiting from the function of directly serving the real economy, there are more cases of commodity OTC derivatives and more complete information. This paper selects Jingning apple (the highest single compensation amount in China) and Xinjiang cotton project to explain the “insurance + futures” model in detail; Select the case of Dalian Shide to analyze how to use the combination of OTC option and income swap to lock in the purchase cost of PVC; Select the case of corn grain bank to see how futures companies can help enterprises avoid the risk of price decline.
Investment suggestion: through various real cases of OTC derivatives, we fully realize that the flexibility and functions of derivatives are powerful and diverse. At present, OTC derivatives business has become the most dynamic field of China’s securities business. We maintain the recommendations of Huatai, CITIC and CICC in OTC derivatives in the post snowball era. In addition, as a leader in the futures industry, Yong’an futures has strong strength in OTC derivatives business, and reiterates the “Buy-A” rating.
Risk tips: risks such as policy changes, lack of professional ability, customer credit and business development not as expected.
