"Zhong Sheng, this is a contract, you can look at it first." A young woman in a close-fitting uniform with an HSBC nameplate handed Zhong Shi a thick contract and whispered softly.

Zhong Shi took it and looked at it, and the whole text was in English. He couldn't help frowning, but he didn't say anything more, just looked down and looked at it carefully.

This is an option contract about a long Japanese yen, and the approximate content is that Party B of the contract has the right to buy 110 billion yen at an exchange rate of 110 yen per dollar until February 15, 1994 (A). The contract period is up to one month. Before the maturity date, you can choose to make a USD demand deposit in your HSBC bank account or provide a short-term loan from HSBC as security, and if you choose a short-term loan, you will be required to pay 10% of the profit as a security fee and commission for the transaction. The premium for the contract is US$5 million.

In other words, if the ratio of yen to dollar is higher than 110:1 at expiration, then the contract will be meaningless except to pay $5 million, after all, if Zhongshi chooses to execute, there will be more cheap yen in the market. During this time, if the exchange rate of the yen against the US dollar rises, Zhongshi can choose to execute the contract, but because of the option premium, the exchange rate of the yen against the US dollar must rise to about 109.45:1 to make a profit.

The reality is that since the yen rose to an unprecedented 100 yen to 1 dollar in August '93, the yen has entered a depreciation channel against the dollar, and has depreciated by nearly 10% in just four months. Today, the yen is worth about 112 yen to 1 dollar.

While Zhong Shi carefully read the terms of the contract, the young woman in uniform had been observing the reaction of the young man in front of her, her name was Zhou Yufang, an employee of HSBC's private banking department, who was now in charge of receiving members of the Zhong family, and was extremely delicate and meticulous. She easily got some inside scoop from some of the Standard Chartered traders in New York, only to find out that the wealth of the Chung family in the private bank was just the tip of the iceberg, and later some senior HSBC Hong Kong executives talked to her, implying that Zhong Shi was a big customer and especially fond of risky derivatives. So when she received such a yen option. I found Zhongshi.

When Zhou Yufang looked at Zhong Shi, Zhong Shi didn't feel the slightest feeling for the delicate figure and beautiful face woman in front of him, he was thinking about every clause of this contract word by word, but when he finally saw that the option premium was only a mere $5 million. And he laughed.

"Miss Zhou. If I'm guessing correctly. In addition to this long option, there is also a short option with the same underlying amount and strike date, right? Zhong Shi raised his head and found that Zhou Yufang was staring at him intently with a pair of big eyes. I couldn't help but feel a little strange, he looked down at his dress, wearing a gray and white trench coat with light blue jeans, looking very sunny and energetic, there was nothing wrong.

There's nothing wrong with his dress, but if he's thirty years old and the location is on a golf course, it makes a lot more sense now. Now it's in an inconspicuous café, and Zhong Shi doesn't understand that Weishenme Zhou Yufang made an appointment here, but recently he happened to hand over the things at hand to someone else to do, and he happened to be nearby, so he rushed over.

At this time, there are several young couples sitting in the café, which is very rare in Hong Kong, a place where life is fast-paced, the air is filled with a strong aroma, and from time to time there is a low voice of Yoko Ohno, which makes the whole atmosphere seem unusually romantic.

However, Zhong Shi turned a blind eye and turned a deaf ear to all this, he looked at himself and made sure that there was nothing rude, so he looked at Zhou Yufang strangely, and found that he didn't know when this young lady's face had turned red. Zhong Shi thought about it for a while, and then he understood, thinking that the girl in front of him had other thoughts, but from the words "US dollar demand deposit in HSBC" on the contract, this girl in her twenties must have a certain understanding of his net worth, and in this case, the reaction of the blushing face does not know how true or false.

"Miss Zhou, am I right just now?" Zhong Shi coughed lightly, and his volume increased a few points, as if intentionally or unintentionally reminding Zhou Yufang of his gaffe.

Hearing the dissatisfaction in Zhong Shi's tone, Zhou Yufang hurriedly replied, "Huh? Right...... Uh, it's not right......" After noticing that something was wrong, she hurriedly denied it, but this kind of self-messing behavior had confirmed the conjecture in Zhong Shi's heart.

If the counterparty of this contract is HSBC, if the yen rises at that time, HSBC will have to bear the corresponding losses. Given the size of the underlying amount, HSBC would have to bear a lot of losses if the yen rose to 109 yen to 1 dollar, even though the current exchange rate was still around 112:1.

This is naturally impossible, so the most likely is that a Japanese exporter has made a business in US dollars, seeking hedging in the over-the-counter market in order to avoid exchange rate risks, and now that the yen is lower, it is just right to sell a long option. If the yen is higher than 110:1 against the dollar at the time of settlement, then he will exchange currency in the market, and if the yen appreciates, he will sell it at 110:1, and in any case, the exchange rate risk will be completely avoided for Japanese companies.

It's just that what Zhong Shi is talking about is not the above two cases, but the most ruthless one: someone buys a short option (B) in the market, that is, the right to sell 110 billion yen at the exchange rate of 110 yen to 1 dollar on February 15. In this way, HSBC, as a middleman who matches the transaction between the two parties, is in a position of making sure that it will not lose money.

If the yen depreciates at that time, then the seller of the yen buys 110 billion yen at the market price, and then sells the option to HSBC at an exchange rate of 110:1 to earn the corresponding difference, while the Zhongshi side cannot choose to exercise, so the option premium is lost in vain. When the yen appreciates, Zhongshi exercises the option to buy 110 billion yen at a 110:1 exchange rate and then sell it at the market price. The short-seller loses the premium.

In this way, whether the yen appreciates or depreciates, HSBC will inevitably fall to the point of loss, but how shrewd are commercial banks, how can they do such loss-making transactions! Most likely, HSBC will draw up two more options contracts in different directions at the same time as the two contracts will be matched to completely hedge the risk.

The two contracts are designed as follows: a bullish contract is designed to buy 110 billion yen option (C) at an exchange rate of 110 yen to 1 dollar on February 15, and this contract hedges the contract of the Japanese yen seller. At that time, HSBC will be able to hedge the risk of the depreciation of the yen. At the same time, they designed an option (D) to sell 110 billion yen at an exchange rate of 110 yen to 1 dollar on February 15, and this contract was designed to hedge the Zhongshi contract, and when the yen appreciated, they could sell 110 billion yen to Zhongshi at the agreed price.

When the yen depreciates. The options contracts B and D are executed. HSBC sells 110 billion yen bought from contract B by executing contract D. The two cancel each other out. When the yen appreciated, options contracts A and C were executed, and HSBC bought 110 billion yen by executing contract C. Then sell to Zhongshi, and in such a cycle, HSBC completely avoids the risk from the exchange rate.

In this process, HSBC holds two long and short options respectively, and sells two options with the same underlying amount and delivery time, so there is no risk at all in the execution process. And the underlying amount of the entire transaction reached 4 billion US dollars, which is also the reason why the trading volume of the Weishenme OTC market is so large.

The whole trading process is not complicated, but what does HSBC do to make money? The secret lies in the option premium, as an American-style option, there is no strict standard for pricing, it all depends on the psychological price of both parties to the transaction. Even if the two options held by HSBC were $4.99 million each, they received $10 million for the two options they sold, and $9.98 million for the options they buy, and the difference of $20,000 in the middle fell into their pockets.

In addition to the difference between the option premiums, there is also the part of the transaction guarantee, because very few people or institutions can come up with a billion dollars in cash at one time, so the commercial bank can provide the guarantee, which is another fee, in addition to the guarantee fee, the money lent even overnight, there is a lot of interest.

The most ruthless thing here is that "if you choose a short-term loan, you need to pay 10% of the profit as a guarantee fee and commission for the transaction", that is, whether the yen appreciates or depreciates, the party that makes a profit will pay 10% of the profit.

It took Zhong Shi a long time to figure out the mystery, the OTC market is like this, the two sides of the transaction through negotiation to determine the amount of the contract, fees, etc., which is also the reason why large financial institutions spare no effort to match transactions in the OTC market. Formal exchanges tend to have very low option fees, and exchanges and brokerage firms can take less commissions from them, while financial institutions that participate in the OTC market not only do not take a little risk, but also make a lot of profits.

"I've signed this contract!" Zhong Shi stretched out his hand into his arms, and after a long time, he was embarrassed to find that he did not have the pen with him, and at this moment, a delicate Montblanc signature pen was handed to him, Zhong Shi looked up and found Zhou Yufang looking at him expectantly, a pair of big eyes full of excitement.

“xiexie！” Zhong Shi took the pen and happily signed his name in the position of Party B at the back of the contract. It should be noted that this contract was signed in the name of Tianyu International Capital Management Co., Ltd., and it is also the first investment after the establishment of this company. Although the time frame is short, Zhongshi is confident that he is optimistic about the direction of the yen in the next three months, and even if the yen weakens, he may hedge his risk through forward futures contracts. (To be continued......)

PS: PS: The option contract is a bit complicated, you can understand that the bank holds two options in different directions that can be executed, and the two executed rights sold are in the hands of the customer, so when the customer executes, the bank executes the option in the same direction. Zuihou, thank you very much for the monthly pass support of rexjue and lxyly! At the same time, thank you to the demon dragon war ghost, feixingwang, and the reward that made me think about it!