Recently, the rumor that famous actress Jiang Shuying "went to the headquarters of Shenwan Hongyuan after a Snowball product margin call" has spread widely on the internet.
This has drawn a lot of attention to this emerging financial product. Many people have heard of stocks and funds, but not about Snowball financial products. Some might wonder if it has something to do with making snowballs in winter – can one really make money by selling snowballs?
However, those familiar with finance may know that there is a community called "Snowball" in China, which also has various media platforms like public accounts. Following the appearance of this hot search, many people have been confused, wondering if there was an issue with this community.
Recently, the discussion about the "Snowball product margin call" has heated up, with many people discussing it on news, graphic, and video platforms.
So, what exactly is the Snowball product, why did it lead to a margin call, what's its underlying logic, and what does the so-called 'knock-in and knock-out' mean? Let's explain it below.
Is there a connection between the Snowball product and the Snowball community? Did Jiang Shuying really face a margin call?
Although both are related to finance and economics, they are not connected. The Snowball product is a financial product, while the Snowball community is a third-party community.
On January 20, 2024, the Snowball community officially published an announcement to clarify that they are not related. The hot search is about the Snowball product and is unrelated to the Snowball community.
(Photo source: Snowball Public Account)
The company related to Jiang Shuying has stated that the news is false, and the so-called "offline rights protection after the margin call" is not true.
The circulating rights protection photos are actually from a shooting site, not the company's headquarters.
Introduction to Snowball Product
The full name of the Snowball product is Snowball Structured Options Product, similar in play to put options. Simply put, it's like a betting agreement between a buyer and a seller on a "target."
The buyer believes the target will rise significantly, while the seller thinks the increase won't be much or may even fall. The target of this bet is not fixed; it can be an index or a specific stock, and the agreed-upon target is known as the underlying.
The Snowball product has a special mechanism called the "safety cushion mechanism," meaning there are limits to how much it can rise or fall. If the rise exceeds the limit, users are settled profits according to the agreed ratio.
Correspondingly, if there is a significant fall, it will also be forcibly settled. This settlement is known as knock-in and knock-out. If there is an increase on the observation day, it triggers a knock-out, which can be understood as making money.
Correspondingly, knock-in means losing money. This settlement is not always in real-time; it does not mean settlement happens immediately if the rise exceeds the agreed ratio at 15:00 today.
Instead, it waits for a knock-out observation day, usually once a month, and the first two months of purchase do not have observation days.
For knock-in, which corresponds to knock-out, there are no observation days; it depends on the closing price each day. If the closing price is lower than the agreed knock-in price, it triggers a knock-in.
(Photo source: CITIC Securities)
The return on the Snowball product is not fixed, and like stocks, it has ups and downs. Some sales organizations, to promote sales, deliberately spread messages that Snowball products are safe and guaranteed profits.
These are deceitful words; Snowball products can also lead to losses. For example, the so-called "Jiang Shuying's Snowball product margin call" in the news refers to her Snowball product's underlying asset falling below the agreed knock-out price, leading to forced liquidation and significant losses.
Although this news is false, the operating logic it describes is real and not a guaranteed profit scenario.
The Operating Logic of Snowball Products Since
Snowballs, like stocks, have ups and downs, why buy Snowballs instead of stocks, which are more convenient and straightforward?
First, Snowball has certain requirements for users' funds, usually targeting high-net-worth individuals. Although the threshold has been lowered in recent years, it is still not as accessible as stocks.
Snowball has become a well-known product due to its "safety cushion mechanism," meaning there is a lower limit to the fall, unlike stocks that can keep falling without a bottom line. Usually, this lower limit is around 80%, but specific products may vary.
This mechanism ensures that investors' losses are not too severe to accept and will cut losses in bad situations, painful but not fatal. Correspondingly, the profit ceiling of this product is also limited, unable to experience the wealth surge like stocks.
Usually, the percentage price of knock-out is smaller than that of knock-in, meaning losses are greater and profits are smaller.
Of course, there are many other scenarios, such as hitting the knock-in floor but rising again on the same day, hitting the knock-out line but falling again before the observation day, or not triggering either line and just fluctuating. In these cases, one only receives the agreed interest.
(Photo source: CITIC Securities)
So, how do sellers make money from this product? Not every Snowball triggers knock-in and knock-out; many fluctuate back and forth. The seller's job is to make trades during these fluctuations, buying low and selling high.
This strategy may seem simple but is difficult to execute. The risk of buying low and selling high is mostly borne by the buyer or investor, while the seller operates under the premise of guaranteeing the agreed annual interest rate, with any extra profit belonging to them.
The Risks of Snowball Products
As an emerging financial product, many companies use non-standard or even illegal misleading language to deceive customers into investing.
The most common tactic is to downplay or even hide the risks of the product. Snowball products, as investments, naturally have risks. The level of risk needs to be considered in various aspects. Sometimes, external black swan events can also affect Snowball products; it's not a business guaranteed to make a profit.
The Snowball product is just a financial product with a "safety cushion" to prevent users from falling below the line in one go, causing unacceptable losses. It's not guaranteed to make a profit!
The old saying still holds: Investing carries risks, enter the market cautiously.
