Odd Lots How An Exotic Investment Product Sold In Korea Could Create Havoc In The U.S. Options Market
Jan 20, 2020
Benn Eifert, Head of QVR Advisors and expert in volatility and derivatives, dives into the bizarre realm of Korean structured notes, known as 'super lizards' and 'flash lizards.' He explains how these complex investment products, aimed at retail investors, could unleash chaos in the U.S. options market. The discussion also highlights the hidden dangers of banks’ hedging strategies and the risks associated with selling options in volatile markets. Eifert emphasizes the fragility of today's financial landscape and the potential for significant disruptions.
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Past Structured Product Issues
- Structured products have caused past market turmoil, like the 2018 Natixis blow-up and the 2015 Chinese Yuan devaluation.
- These incidents highlight the risks these products pose.
Origins of Structured Products
- Structured products originated in Asia and Europe, filling a gap for investors lacking access to traditional markets.
- These products offered attractive returns and currency hedging, appealing to a growing middle class.
Basic Structured Product Mechanics
- Traditional structured products offer principal protection and index-linked returns.
- Investors receive price appreciation but often miss out on dividends, a subtle trade-off.