Chapter 151 Complicated option betting

   "Zhong Sheng, this is the contract, please read it first." A young woman in a close-fitting uniform with a HSBC nameplate handed a thick contract to Zhong Shi and said softly.

  Zhong Shi took it over and took a look. The whole article was in English. He couldn't help frowning, but he didn't say much, so he looked down carefully.

   This is an option contract about long yen. The general content is: Party B of the contract has the right to buy 110 billion yen at the exchange rate of 1 US dollar to 110 yen before February 15, 1994 (A). The maximum contract period is one month. Before the due date, Party B can choose the US dollar current deposit in the HSBC account or HSBC to provide a short-term loan as a guarantee. If you choose a short-term loan, you need to pay 10% of the profit as the guarantee fee and commission for the transaction. The contract has an option premium of $5 million.

In other words, if the ratio of Japanese yen to US dollar is higher than 110:1 when it expires, then this contract is meaningless except to pay 5 million US dollars. Yen abounds. During this period of time, if the exchange rate of the yen to the dollar rises, Zhong Shi can choose to execute this contract, but because of the option premium, the exchange rate of the yen to the dollar must rise to about 109.45:1 to obtain the contract. profit.

The reality is that since August 1993 when the yen exchanged against the U.S. dollar rose to an unprecedented 100 yen to 1 U.S. dollar, the yen has entered a depreciation channel against the U.S. dollar, and has depreciated by nearly 10% in just four months. Today's yen is worth around 112 yen to the dollar.

While Zhong Shi was carefully looking at the terms of the contract, the young woman in uniform had been observing the reaction of the young man in front of her. Her name was Zhou Yufang, and she was an employee of the private banking department of HSBC. She was now in charge of receiving members of the Zhong family. Delicate and meticulous. After she easily obtained some inside information of the Zhong brothers in New York from some traders of Standard Chartered, she discovered that the wealth of the Zhong family in the private bank was just the tip of the iceberg. Later, some senior officials of HSBC Hong Kong I specifically talked to her, implying between the lines that Zhong Shi is a big customer who especially likes derivatives with huge risks, so when she received such a yen option, she approached Zhong Shi.

While Zhou Yufang was sizing up Zhong Shi, Zhong Shi didn't feel the slightest sense of the exquisite figure and good-looking woman in front of him. He was thinking about every clause of the contract word by word, but when he finally saw that the option fee was only When it was a measly $5 million, he laughed.

"Miss Zhou, if my guess is correct, besides this long call option, there is also a short call option with the same underlying amount and same execution date, right?" Zhong Shi raised his head and found that Zhou Yufang was staring at a pair of big eyes Staring at him intently, he couldn't help but feel a little strange. He lowered his head and looked at his attire. He was wearing a gray trench coat and light blue jeans. He looked very sunny and energetic, and there was nothing wrong with him.

  There is nothing wrong with his attire, but if he was thirty years older and the location was on a golf course, then this scene would make a lot more sense now. Now it’s in an unremarkable cafe, and Zhong Shi doesn’t understand why Zhou Yufang made an appointment here, but recently he happened to leave all the things at hand to others, and he happened to be nearby, so he rushed over .

At this time, several young couples were sitting in the cafe in twos and threes, which is very rare in Hong Kong, a place with a fast-paced life. It seemed extraordinarily romantic.

  But for all of this, Zhong Shi turned a blind eye and turned a deaf ear to it. He looked at himself and made sure that there was nothing disrespectful. Then he looked at Zhou Yufang strangely, and found that the lady's face had turned red at some point. Zhong Shi thought for a while, and then he understood that the girl in front of him had other thoughts, but judging from the words "U.S. dollar current deposit at HSBC Bank" on the contract, this girl in her twenties must be interested in his love. With a certain amount of knowledge about his wealth, he didn't know how true or false his blushing reaction was under such circumstances.

   "Miss Zhou, was I right?" Zhong Shi coughed lightly and raised his voice a little, as if intentionally or unintentionally reminding Zhou Yufang of his gaffe.

Hearing the dissatisfaction in Zhong Shi's tone, Zhou Yufang hurriedly replied: "Ah? Yes... er, no..." After realizing that something was wrong, she quickly denied it, but this kind of self-disordered behavior has already been confirmed by Zhong Shi. The conjecture in Shi's heart.

  The counterparty of this contract is HSBC Bank. If the yen rises at that time, HSBC will bear the corresponding losses. Based on such a huge target amount, as long as the yen rises to the exchange rate of 109 yen to 1 US dollar, HSBC will bear a lot of losses, although the current exchange rate is still around 112:1.

This is naturally impossible, so the most likely thing is that a Japanese export company settled a transaction in US dollars and sought hedging in the over-the-counter market in order to avoid exchange rate risks. call options. If the exchange rate of the yen to the US dollar is higher than 110:1 at the time of settlement, then he will exchange currency in the market. If the yen appreciates, he will sell it at 110:1. In any case, Japanese companies will completely avoid the exchange rate rise. risks of.

It’s just that what Zhong Shi said was not the above two situations, but the most ruthless one: someone bought a short option (B) in the market, that is, on February 15, 110 yen was exchanged for 1 The dollar exchange rate sold 110 billion yen of rights. In this way, HSBC, as the middleman who brokers the transactions between the two parties, is in a position to make money without losing money.

If the yen depreciates at that time, the party selling the yen will buy 110 billion yen at the market price, and then execute the option and sell it to HSBC at an exchange rate of 110:1 to earn the corresponding price difference, while the Zhongshi party is impossible If you choose to execute, you will lose the option premium in vain. As the yen appreciates, Zhongshi executes the option to buy 110 billion yen at an exchange rate of 110:1, and then sells it at the market price, and the corresponding short seller loses the option premium.

   In this way, whether it is the appreciation or depreciation of the yen, HSBC will inevitably fall into a loss, but how shrewd are commercial banks, how can they do such a loss-making transaction! Most likely, while matching these two contracts, HSBC is most likely to draw up two more option contracts with different directions to completely hedge the risk.

These two contracts are as follows: design a bullish contract, that is, buy options (C) of 110 billion yen at the exchange rate of 110 yen to 1 US dollar on February 15, and what this contract hedges out is the sale By issuing a contract on the yen side, HSBC will be able to hedge the risk caused by the depreciation of the yen, and at the same time design an option to sell 110 billion yen at the exchange rate of 110 yen to 1 dollar on February 15 (D), this contract is to hedge the contract of Zhongshi. When the yen appreciates, they can sell it to Zhongshi for 110 billion yen at the agreed price.

  When the yen depreciates, option contracts B and D are executed. HSBC sells the 110 billion yen bought by contract B through the execution of contract D, and the two offset each other. When the yen appreciates, option contracts A and C are executed. HSBC buys 110 billion yen through the execution of contract C, and then sells it to Zhongshi. In such a cycle, HSBC completely avoids the risk from the exchange rate.

  During this process, because HSBC held two long and short options, it sold two options with the underlying amount and the same delivery time, so there was no risk in the execution process. The target amount of the entire transaction reached 4 billion US dollars, which is why the transaction volume in the OTC market is so large.

  The whole transaction process is not complicated, but how does HSBC make money? The mystery lies in the option premium. As an American option, there is no strict standard for pricing, and it all depends on the psychological price of both parties to the transaction. Even if the two option fees held by HSBC are about US$4.99 million each, the two options they sold received an option fee of US$10 million, while the options they bought cost US$9.98 million. The difference of $20,000 is firmly in their pockets.

In addition to the difference between the option premiums, there is also the part of the transaction guarantee, because few people or institutions can come up with one billion dollars in cash at one time, so commercial banks can provide guarantees, which is another cost, in addition to the guarantee fees , Even if the funds lent overnight, there is a lot of interest.

  The most ruthless thing here is "If you choose a short-term loan, you need to pay 10% of the profit as the guarantee fee and commission for the transaction", that is, whether the yen appreciates or depreciates, the party that makes the profit must pay 10% of the profit.

  It took Zhong Shi a long time to figure out the mystery. The over-the-counter market is like this. The two parties to the transaction determine the target amount and fees of the contract through negotiation. This is also the reason why large financial institutions spare no effort to match transactions in the over-the-counter market. The option fees of formal exchanges are often very low, and exchanges and brokerage companies can extract less commission from them, while financial institutions participating in the OTC market not only take no risk in this way, but also earn a lot of profits.

"I have signed this contract!" Zhong Shi stretched his hand into his bosom, and after digging for a long time, he was embarrassed to find that he did not bring the signature pen with him. At this moment, a delicate Montblanc signature pen was handed over to him. In front of him, Zhong Shi looked up and found that Zhou Yufang was looking at him expectantly, with a pair of big eyes full of excitement.

   "Thank you!" Zhong Shi took the pen and signed his name on the place of Party B at the back of the contract. It should be noted that this contract was signed in the name of Tianyu International Capital Management Co., Ltd., and it is also the first investment of this company after its establishment. Although the time for consideration is very short, Zhong Shi is very confident. He is optimistic about the trend of the yen in the next three months. Even if the yen depreciates, he may use forward futures contracts to hedge risks.

PS: The option contract is a bit complicated. You can understand it this way. The bank holds two options that can be executed in different directions. The two sold options are in the hands of the customer. Therefore, when the customer executes, the bank executes the same direction. options. Finally, I would like to thank book friends rexjue and lxyly for their monthly support! At the same time, thanks to Magic Dragon War Ghost, feixingwang, for making me think about the reward!

  

  

  (end of this chapter)