Recently, the South Korean stock market was driven by soaring IT stocks. Both institutional and foreign investors were uniformly raising their target prices and taking long positions.
Seosung Electronics was breaking through previous highs and reaching an all-time high, and the stock market was similarly buoyant.
However, murmurs began to emerge about the market being overheated compared to the real economy, with predictions of a potential correction due to profit-taking.
In this context, the announcement of the discontinuation of the L6 was like pouring cold water into a boiling furnace.
The rosy outlook vanished, replaced by pessimism. Not only Seosung Electronics but also related stocks—and even unrelated stocks—plummeted.
Terrified individual investors were dumping their shares, and foreign investors, who had already shown strong selling momentum early in the day, only increased their selling.
By late afternoon, although institutions began buying and even pension funds joined in, it was not enough to halt the downward trend.
The Korean Exchange, as well as securities firms, investment trusts, and fund companies, were all thrown into chaos.
The same went for KYB Investment Securities, the largest securities firm in the country.
This marked the first time Seosung Electronics had hit the lower limit since the 2008 financial crisis. However, the situation was drastically different now.
During the financial crisis, not only Seosung Electronics but also well-known global companies saw their stock prices drop by dozens of percent.
The most significant difference was that, back then, price fluctuations were capped at 15%. Currently, however, this limit had been expanded to 30%.
In other words, a 30% drop in Seosung Electronics was a historical first.
After the launch of the L6, Seosung Electronics had been on an upward trajectory, with predictions that its stock price would continue to rise. As a result, pension funds and other investment funds had been accumulating shares of Seosung Electronics.
The holdings by investment trusts and securities firms were substantial as well.
Not a single person had foreseen this turn of events.
Park Jong-il, the executive in charge of securities at KYB Investment Securities, loosened his tie and sat down. The graph displayed on the monitor was frozen.
The stock market was currently halted due to the activation of a circuit breaker. For a moment, it seemed like the storm had calmed, but once trading resumed, a larger aftershock was inevitable.
His phone had been ringing incessantly since before the market opened. It was all inquiries and complaints from major clients.
Unable to respond to each call as usual, he had long since switched his phone to silent mode.
Knock!
With the sound of knocking, Team Leader Kim Woon-yong entered.
"You called for me, Executive?"
"Have you assessed the losses from the put options?"
"We're currently working on it. Depending on the exercise price, there's a significant difference, but the KOSPI200 put options are in the hundreds of times range…"
"What about the Seosung Electronics put options?"
Team Leader Kim Woon-yong lowered his head and replied, "It's over 1,000 times."
"..."
Park Jong-il squeezed his eyes shut.
He had already expected it, but hearing it directly left him feeling dazed.
Seosung Electronics hitting the lower limit meant that the loss in the spot market had reached 30%. The problem lay with the derivatives.
Up until that moment, the put options were worthless, while the call options were within the range of exercise.
However, due to the sudden announcement, the situation had completely reversed. All call options were now out of the exercise range, while all put options became exercisable.
While one might think they were the same, the payment price for call options was not substantial. In contrast, the payment price for put options had skyrocketed to hundreds of times their issuance price
.
He had no idea how significant the losses could be.
Hundreds of billions? Thousands of billions?
The derivatives market was essentially a place where retail investors blindly threw money, hoping for a windfall.
But now, that money had suddenly boomeranged back at them.
All securities firms that issued put options would struggle to avoid a quarterly deficit. As a result, securities stocks were already plummeting by over 10%.
It was likely that several small to medium-sized financial firms would struggle to avoid bankruptcy.
Park Jong-il gave orders, "Assess the current status of the derivatives, determine the payment amounts for ELWs and put options, and check the Knock-In ranges for issued ELS. Find a way to minimize losses by the option expiration date."
"Understood."
Even after finishing the conversation, Team Leader Kim Woon-yong did not leave the room.
When Park Jong-il looked at him, he hesitated before cautiously speaking.
"There's one thing I need to mention."
"What is it?"
"I'm not entirely sure, but it seems that someone at Golden Gate was accumulating Seosung Electronics put options before this incident."
"What?"
At that, Park Jong-il felt a shock like being hit in the head with a hammer.
What could this possibly mean?
"Are you saying that Golden Gate had prior knowledge and accumulated those options?"
Team Leader Kim Woon-yong shook his head. "I initially thought that too, but it seems that's not the case. Golden Gate will also suffer considerable losses from this incident."
Golden Gate had also issued various put options based on KOSPI200 and Seosung Electronics. They, too, would have to pay hundreds of times their issuance price.
"If they had obtained information in advance, they would have sold off their futures and spot positions. There was no such movement."
If Golden Gate had learned the information faster than they did, they would have disposed of all their futures and spot positions while buying up the put options. They wouldn't just sit back and accept the losses.
"So?"
"It seems a specific corporation bought them through Golden Gate."
However they chose to invest was their business.
Yet, focusing on accumulating put options for a specific stock, rather than an index, felt somewhat suspicious.
Given that their predictions had been correct, it would have been a disaster had they been wrong, as the money would have directly benefited the issuers.
Without prior knowledge of this…
If this was indeed an insider trading incident, it could be serious.
Park Jong-il gave orders, "Find out who it is and how they obtained the information."
"Understood."
Team Leader Kim Woon-yong turned to leave the room. There was less than a minute left until trading resumed.
Park Jong-il glanced at the clock and muttered, "Who the hell are these people?"
Taek-gyu and I were at a loss for words as we watched the falling stock prices.
Both the KOSPI and KOSDAQ indices, which had been breaking previous highs, had returned to levels from months ago.
Seosung Electronics, which had reached an all-time high of 1,797,000 won just the day before, had suddenly dropped to 1,258,000 won.
It was below the 52-week low.
When we shorted stocks and bought put options, the average price was 1.6 million won.
The short positions recovered their losses at once and returned over 20% in profit. The put options were nothing short of a jackpot.
Options that had been practically worthless just the day before had now all become exercisable.
Some options had increased a few hundred times, while others had risen over 1,000 times.
Of course, this was based on the price after the crash, and when viewed from our buying price, the increases were considerably lower.
Stocks are not a zero-sum game.
In an open market, there can be instances where everyone profits or everyone suffers losses.
However, short selling and options trading are structured in a way that someone's loss inevitably translates into someone else's gain.
The disaster for everyone else became a blessing for us.
The community, including the stock gallery, was filled with cries of despair.
"We're holding a meeting at Han River today."
"We're recruiting a jump team for bungee jumping off the Mapo Bridge."
"This isn't some hell for retail investors."
"Once the circuit breaker is lifted, won't it drop even further?"
"Ah! I wish this was just a dream."
"First, we have to take out Im Jin-yong."
"Let's rush to Seosung Electronics' Gangnam headquarters draped in L6!"
"I want to throw an L6 at Jo Dong-jun's face."
"Can't we resell the collected L6 to IS to reduce our losses?"
On the other hand, a very small number of investors who had invested in inverse ETFs or put options were celebrating.
"I bought a leveraged inverse ETF yesterday, and it's up +13.8% in just one day!"
"KOSPI200 put options up 270 times!"
"This is a put party that happens once in ten years. I've been waiting for this day!"
"If I had held Seosung Electronics put options, how much would it be worth?"
"Thanks to Vice Chairman Im Jin-yong and President Jo Dong-jun. I recovered all the money I lost over 20 years in just one day."
"Put men will all be smiling today. Put, put, put, haha!"
Taek-gyu blinked in disbelief and asked, "Is this for real?"
I felt the same way; it was hard to believe.
I had desperately hoped for this outcome, but now that it was happening, it felt surreal. My head was blank, as if I were dreaming.
"This can't be a dream."
Taek-gyu raised both arms and shouted, "Wow! We're rich now!"
Seeing Taek-gyu cheering, I burst into laughter.
"You were already rich."
However, now a billionaire was becoming a multi-billionaire.
Taek-gyu hugged me tightly.
"I love you, my friend!"
Normally, I would have pushed him away, saying what a man-to-man act that was, but...
I hugged Taek-gyu and shouted, "We did it!"
After closing at the lower limit the previous day, Seosung Electronics opened the next day at 1,224,000 won, down 2.7%.
Fortunately, buying pressure came in later, allowing the stock to rebound slightly and finish the day up 2.4% at 1,288,000 won.
The stock market, which had shown panic the previous day, managed to stabilize, with indices rebounding by 0.95%.
The next day was the option expiration date.
Seosung Electronics announced a refund policy and a replacement program through the media and stated that they would accelerate the early release of the NT6, a derivative model of the L6, in an effort to minimize the impact of the L6 discontinuation.
With the help of institutional and pension fund buying, the stock price of Seosung Electronics rose 6.6% on the option expiration date to recover to 1,373,000 won, and both the KOSPI and KOSDAQ indices rose by over 2%.
Prices for the dollar, gold, and crude oil all fell, indicating that the financial markets were stabilizing.
From the moment Seosung Electronics hit the lower limit, we began selling options. However, the put options had already skyrocketed, making it impossible to sell in the market.
Finally, the option expiration date approached. We closed our short positions and secured our profits.
The final return rate was 5,170%.
[685,000,000,000]
We made over 50 times our investment, turning our 13 billion won into 685 billion won.