Whether it's from '12 O'Clock Meetup' or from various stock-related channels, everyone is unanimously pointing to single-stock leveraged ETFs as the culprit for recent volatility in the Korean stock market, and I'm genuinely frustrated about this phenomenon, so I have a few words to say.
The Korean stock market raised high barriers to entry for individual option trading while launching single-stock leveraged ETFs.
Unlike futures/options trading, single-stock leveraged ETFs are mostly handled through stock futures or swap contracts between securities firms rather than direct purchases of actual stocks—the actual trades of the underlying stock resulting from leveraged ETF trading are far fewer than people think.
In other words, single-stock leveraged ETFs are not the main culprit behind the tail-wagging-the-dog phenomenon—because in reality, most trades occur independent of the underlying stock trading by LPs.
Recently, articles have been pouring out saying that trading volumes of single-stock leveraged ETFs have surpassed those of underlying stocks, and comparisons are being made with the U.S. case. But the perspective that Korean market participants have higher speculative tendencies than U.S. market participants, and therefore single-stock leveraged ETF trading volumes are higher than underlying stock trading volumes, is (intentionally) distorted.
The U.S. has no restrictions on individual option purchase transactions.
Options trading necessarily and in real-time triggers underlying stock trades.
That is, because options trading is active as a hedging and leverage tool, the U.S. has explosive underlying stock trading volumes, and there's no incentive to trade leveraged ETFs, which have relatively slim pickings.
This is why the trading volumes of leveraged ETFs for NVIDIA or Micron (as cited in the article) don't surpass the underlying stock trading volumes.
The decisive culprit behind recent SK Hynix's decline was the formalization of the 'Hynix ADR listing announcement.'
Market expectations that 'the stock price will rise until the ADR listing begins + 2.55 million won could be a support level'—if you just look at past ADR listing cases, you can see that the direction could be different.
With Hynix's ADR listing being formalized by the June 24 announcement,
1) Overseas institutional investors wanting to participate in ADR book-building have begun engaging in full-scale delta hedging.
2) Since they'll receive allocations at a discount anyway, they have sufficient incentive to short the underlying stock (crash the price) to induce the offering price to be formed as low as possible.
3) This way, they can receive the maximum number of ADR allocations, and if they short the underlying stock in advance, this position becomes confirmed profit equal to the discount rate as soon as they receive it.
4) But if the underlying stock price is formed much higher than their expectations, the allocation volume decreases and the expected return rate drops accordingly.
As of today's (7/9) regular market close, ADR listing price has been set, so Hynix's stock price is rising again in the next session (foreign investors no longer have a reason to manipulate the underlying stock).
Conclusion: To properly absorb speculative demand in the Korean stock market (hoping for no speculative demand or a reduction in it is itself contradictory), we need to remove barriers to entry for individual option purchase transactions (not sale transactions)!
Only then can individuals properly hedge and protect their returns!
Until now, individuals in the Korean stock market have only been forced into long trades, enduring losses in downturns, and desperately waiting for stocks to rise again!
Inverse ETFs, which are as rare as beans in a drought, actually have high loss risk relative to invested capital!
At minimum, we need to open option purchase transactions to individuals just like in the U.S. so they can protect their returns whether in a bull or bear market!
PS. I extend my thanks to those who post market analysis articles on the free bulletin board or stock club groups. However, I believe that refraining from disclosing your own position or predicting short-term stock price movements would reduce unintended victims. People are psychologically weak, and especially for individuals with restricted hedging transactions, when stock prices fall, they are greatly influenced by a single word from someone who seems to know more than them (= someone who writes stock-related posts). I don't think this is something that can be dismissed with a single line saying 'stock investment is your own responsibility.'
