After the decline in January, the bulls in the Singapore futures market have calmed down, some are shorting in the opposite direction, some are stopping out, some are observing the situation, and the bears have also reduced the size of their opening because there are not enough opponents, but most of them still have the same view on the trend after the Japanese stock market crash.

The real show hasn't happened yet!

During this period, the Nikkei index once rushed to close to 38,000 points, so that the market bulls saw the hope of rising again, which also ignited some people's expectations for the future, and the funds returned to the market again, but they could not be compared with the crazy period at the end of eight or nine years, only seven or eight percent of the total funds at the beginning.

The futures market is like this, a complete zero-sum game, either you win or someone else wins, money always turns around in two different directions, the market has winners and losers every day, and there are many more people who are ready to enter the market under the temptation of getting rich.

This is especially true in the index futures market. Different from general commodity futures, its underlying things are intangible and cannot be delivered, and zuihou can only be forced to liquidate.

On February 21, 90, the Japanese stock market opened, and the index reported was the same as the previous trading day's close, and everything seemed to be fine, but soon the situation took a sharp turn for the worse.

A large number of constituent stocks suddenly appeared on the market, and the number of them was so large that people were stunned and overwhelmed. Affected by this, the stock market fell all the way, from 36,865 points at the opening to 35,704 points, a sharp drop of 1,161 points, or 3.15%, in one day, just because of an unconfirmed news that the US exchange will launch Nikkei futures.

The market was obviously a little slow to react to the news, the second trading day, the index rose slightly, but the next two trading days, the market still continued to sell the constituent stocks, which naturally caused the index to fall sharply, the third trading day fell 935 points, to the opening of Monday, February 26, the index fell 1569 points throughout the day, a decline of 4.5%, and once fell to 32443 points, Zuihou closed at 33321 points.

On this day, only four trading days have passed since the news of the launch of Nikkei futures in the United States, and the Japanese index has fallen by 3,544 points, a decline of nearly 10%.

In other words, 10% of Japan's total market capitalization has evaporated out of thin air, and hundreds of billions of dollars have disappeared.

Where does all this money go?

First of all, it must be noted that this money is not all real money, but numbers on the books. Second, some of this money is real money, which is made by those who sell stocks at a high price.

For example, if a stock with a total of 100 million outstanding shares (fully tradable) is bought at a price of $10, then its total market value is $1 billion, and when it rises to $12 per share, the total market value is $1.2 billion. (Assuming that the shareholder structure does not change in this process) when a shareholder who holds 10% of the tradable shares feels that the price has reached the peak, and begins to successfully sell the shares in his hand at the position of 12 yuan and 11 yuan, then the price of the stock falls from 12 yuan to 11 yuan, (assuming that other shareholders are optimistic about the future and do not want to sell) The profit obtained by the shareholder who reduced his holdings did not exceed 20 million yuan, (because of the price change, it is impossible to sell at the price of 12 yuan) and the market value of this stock decreased by 100 million.

In fact, stock market indices are formed by millions of investors making countless decisions, as in the example above, if an individual buys at 12 or 13, the price of the stock may rise, and the entire market value will also expand.

How can you influence a stock index? The first is that there is a very large amount of capital, and the second is that it can affect the volatility of the constituent stocks.

As we all know, a stock index is weighted by the prices of certain companies in the market for a specific period, and does not combine the prices of all stocks.

The selected companies cover all aspects of economic life, including real estate, steel, aviation, shipbuilding, electronics, machinery, finance, high-tech, etc., and all of them are leaders in the industry. It is precisely because of this that the combined index can truly reflect the economic situation of a country.

Now, the stock of these companies has been sold off in large numbers, reflecting some investors' views on the future of the Japanese economy.

Of course, this can also be a short-term behavior, and selling high and buying low is one of the most common means of manipulating stock prices in the market.

In any case, the index is indeed falling.

This is definitely great news for the bears of the futures index.

Due to their late entry, Jim and his team had a total position of about 100,000 lots in the March futures contract, and they once again made more than a billion dollars in profits on the back of the stock market's decline in the past few days.

Similarly, Zhongshi's funds also made a profit of 100 million dollars. Unlike the short positions with heavy positions, Zhongshi was prone to U-turn due to its small position, and quickly emptied the March contract on the 26th, and instead pressed the heavy position on the April contract.

After a few days of plunge, the Japanese stock market finally reacted strongly, and over the next few sessions, the Nikkei rose strongly and finally recovered to 34,519 points in the first trading day of February.

The news that the Chicago Mercantile Exchange (CME) in the United States will launch Nikkei futures has finally been confirmed, and the news that CME will launch Nikkei futures and options in September has once again caused panic in the market.

It should be said that after the previous rumors, the market has been fully prepared for this news, and it stands to reason that the Japanese stock market should not have big fluctuations at this time, but the opposite is true.

After 20 trading days of minor volatility in February, the Nikkei turned its head again, and this time not to blame the rumors, but a large number of Nikkei options came into play.

Two or three years ago, international investment banks began to promote this kind of Nikkei index options in the Japanese market, and the subject of this option is not an ethereal index, but an index futures corresponding to an agreed price.

In January, these options began to sell well on the OTC market, specifically operated by Goodman, and blessed with the aura of European royalty, greatly improving its credit rating.

How does it work?

Excluding Stanley's put options, the fact is that many Japanese companies raised money in the capital markets (not only in the stock market, but also in the bond market) when the stock market was soaring. They promised that if the Nikkei index fell when the loan matured, the company would compensate for the losses.

This part of the loss is to make up for the opportunity cost of losing investment elsewhere because of the purchase of bonds.

The essence of this commitment is that a Japanese company issues a bond with a put option. Whether the bond will repay the principal and interest, and whether this put option is fulfilled depends largely on the performance of the Nikkei.

However, at the time, the Nikkei was so strong that not many people believed it would fall, so the price of these puts was very cheap, even to an outrageous point.

In this case, the international investment banks have bought a large number of this product, that is, Nikkei put options, so what are they going to do, are they planning to gamble with Japanese companies?

No, international investment banks generally don't put themselves in a dangerous position, especially against the huge Japanese market as a whole. These Ivy League bankers design financial products that resemble these Nikkei put options based on certain characteristics of these Nikkei put options, and then sell them.

In this way, it not only hedges the risk, but also makes a lot of lucrative spreads and fees.

Moreover, international investment bankers operate in two different markets with different currencies, one is a Japanese yen-denominated Nikkei put and the other is a U.S. dollar-denominated Nikkei put option. The idea is that if the Japanese market falls, the yen is likely to depreciate due to economic pressures, so that international investment banks may receive yen from Japan and pay investors in dollars to investors in other markets.

As a result, the profits earned by international investment banks may be forced to spit out, or even have to be reversed.

Therefore, when designing put options, it is necessary to add a clause to them, that is, the return of these warrants must be converted into US dollars at a pre-set exchange rate.

Once everything was set, Goodman paid an additional fee to the Royal Danish Bank, which guaranteed that the warrants would be cashed at maturity and that the options would expire in early '93 for a period of two years.

Because there is a real possibility that the Japanese market is falling wildly, then the Japanese companies that raise funds will not be able to pay their previous commitments, and then the Royal Danish Bank will need to step in.

International investment bankers have taken advantage of the different views of the two markets to process bonds with put options bought at low prices from the Japanese market into Nikkei put options, and then sell them at a higher price in the US market.

In this case, the more such financial derivatives the better.

Now the only risk is that the international investment banks may shrink the funds they receive from Japanese companies because of the depreciation of the yen, after all, they have already set a specific exchange rate with the participants in the US market, and now they only need to hedge accordingly in the exchange rate futures or options market, which is not difficult for them.

The other investment banks were not stupid, and soon understood the principle and copied it, and soon these Nikkei put options were flooded.

In addition to Goodman's options, there are also VAM options directly advocated by Japanese companies such as Stanley and Salomon Brothers, and although these options are a little different from Goodman's options, they are in essence clever VAM agreements between foreign investors and Japanese companies.

In addition to these variants, there was a crackdown on the futures market and a sell-off in the Japanese stock market.

In particular, foreign capital on the Osaka Stock Exchange raised money when the stock market was rising and borrowed and shorted when the stock market fell, which to some extent also contributed to rapid changes in the stock market. (In order to thank the recommendation votes of more than 5,000, two more today, thank you for your support, the author will continue to work hard.) zuihou, special thanks to book friend Aline Erin for her evaluation votes. ）