What does snowball product mean?

Snowball option products usually refer to snowball options and financial products containing snowball options. Snowball option is a common exotic options in the international market. Its essence is that investors sell put options with trigger conditions to securities companies. Wealth management products with snowball options generally have the characteristics of high coupon but no capital preservation. The income of snowball structure products depends on the fluctuation range of the price of the linked target. At present, the most common targets of snowball structure products in the domestic market are CSI 500 Index and CSI 1000 Index.

How to buy snowball options?

Snowball option is a kind of OTC option, and the trading method can only be carried out by offline inquiry with brokers, which is similar to the trading method of OTC stock options.

The following are the contract terms of CSI 500 Snowball Option.

Linked target: involving major indexes, individual stocks or individual stock combinations.

Rejection conditions: Snowball products will regularly observe the target price. Once the target price is higher than the rejection price, it will trigger the rejection event, resulting in the immediate termination of the product.

Knock-in condition: it involves observing the target price regularly, but in this case, once the target price is lower than the knock-in price, a knock-in event will be triggered.

At this point, investors began to face the risk of price fluctuations. If the product is not eliminated before the expiration date, investors will have to bear the risk of principal loss, even huge principal loss. After typing, the product will continue to run until it expires or the typing is triggered.

Observation day: divided into knock-out observation day and knock-in observation day. The knock-out observation day is usually once a month, while the knock-in observation day is every trading day. During these observation periods, the target price is compared with the agreed culling or culling price to determine whether the corresponding event is triggered.

Rate of return: It is the final coupon rate, that is, the annualized rate of return when the snowball product is destroyed or not before the expiration. The yield is related to market fluctuation. Snowball products with different targets, different time points, different knock-in and knock-out prices and different durations will have different yields.

Among them, the knock-in and knock-out prices need special attention:

1. Bid: When the price of the underlying assets exceeds the bid on the observation day, it means that the snowball products we purchased will end ahead of schedule, and investors can ensure profits.

2. Knock-in price: The knock-in price has a safety mat, but once it falls below this protective layer, the safety mat will be invalid. If the exclusion condition is not triggered on the maturity date, investors will have to bear the risk of principal loss.

Snowball option is suitable for different market environments;

1. shock market: snowball products perform best in shock market and can get high annualized coupon. In the case of little fluctuation of the index, buying snowball products is expected to gain the most benefits.

2. Rising market: In the rising market, snowball products can quickly trigger the rejection conditions and provide high fixed annualized coupons. However, due to the short duration, the actual rate of return may not be as good as the index.

3. Falling market: When the market falls and triggers the knock-in condition, the performance of snowball products is consistent with the index trend. If it fails to rebound to the cancellation point on the maturity date, investors may face huge losses.

As an option product, snowball has the following important characteristics:

1. Snowball products provide fall protection within a certain range, which is similar to a fixed-income product with exotic options characteristics. From the perspective of options, snowball products are similar to a special put option.

2. Snowball products are designed to provide investors with a certain degree of downside protection, while expressing moderate optimism about the market. This design enables snowballs to achieve greater profits when the market is stable, just like snowballing. As long as there is no big fluctuation in the market, the profit of snowball will continue to increase.

3. In snowball products, the issuer is equivalent to the buyer of put options, and the coupon (option fee) is guaranteed to fall; The buyer is equivalent to the seller of put options, but it needs to bear the risk of falling to get the coupon.

On the whole, according to the past performance, there are four kinds of profit and loss situations of uninsured snowball products, including three kinds of profit and loss 1 species, with a winning rate of 75%.

Risk warning:

1. Non-fixed-income products: Please note that snowball products can't be confused with fixed-income products, and they can't be regarded as "financial products with stable profits and no losses". Snowball products have a certain probability of causing a large loss of principal.

2. Be cautious about propaganda information: don't blindly believe the propaganda slogans of the Internet and the media. Before buying snowball products, please carefully understand its income structure and related terms, and thoroughly study the conditions that trigger knock-out and knock-in events. Make sure you really understand the products you buy. At the same time, effectively evaluate personal risk tolerance and confirm whether you have enough ability to cope with the possible principal loss caused by purchasing snowball products.

4. Understand the target and price trend: investors must have a certain understanding of the target linked to snowballs and have a certain judgment on its future price trend. If the future target rises sharply, investing in snowball products may lead to missing the high income brought by the price increase of the target; On the other hand, if the target continues to decline in the future, investing in snowball products may eventually make investors bear the principal loss caused by the decline of the target.