Core Viewpoint - The rapid expansion of over-the-counter (OTC) derivatives, particularly structured products like snowballs, has raised concerns about risk management and the underlying business model, especially in light of recent market adjustments that have led to significant losses for some institutions [1][5]. Group 1: Business Functions and Risk Sources - OTC derivatives serve multiple functions within securities firms, including wealth management for high-net-worth individuals and professional investors, as well as providing customized strategies for businesses to hedge operational risks [3]. - The expansion of OTC derivatives has led to the accumulation of various risk sources, including reliance on pricing models and parameter calibration, which may not meet international standards, and a lack of adequate stress testing for extreme scenarios [4]. Group 2: Characteristics of Hedging Transaction Risks - Risk pricing and hedging are typically based on the Black-Scholes framework, but deviations from assumptions such as constant volatility and frictionless markets can lead to significant risks, especially for structured products with barriers [6]. - Key parameters like volatility, dividend rates, and interest rates directly impact the hedging process, and their uncertainty can lead to substantial losses during market fluctuations [7]. Group 3: Full-Cycle Risk Profile of Snowball Structures - A comprehensive risk profile for snowball products includes various structures such as classic snowballs and limited-loss snowballs, each with distinct risk and return characteristics [10]. - The sensitivity of snowball products varies significantly based on their status (not triggered, triggered, or knocked out), with different risk profiles emerging at critical points [12]. Group 4: Multi-Dimensional Risk Management Framework - Risk management should begin at the product design stage, incorporating systematic risk assessments and establishing concentration thresholds to prevent excessive risk accumulation [14]. - A dynamic hedging approach is necessary, utilizing historical data and real-time market information to adjust hedging strategies as market conditions change [16]. - A comprehensive risk monitoring system should be established to assess exposure and implement stress testing under extreme scenarios, enhancing the resilience of capital markets [17].

Report Industry Investment Rating No relevant content provided. Core Views of the Report - Equity still has allocation value, waiting for the conversion from valuation-driven to earnings-driven [6] - In 2026, the basis central tendency may rise slightly, but the volatility remains relatively high [7] - In 2026, the equity market is expected to shift from valuation-driven to earnings-driven in the benchmark scenario [8] Summary according to the Table of Contents 1. Market Review and Macroeconomic Outlook - **A-share Market Review**: In 2025, major broad-based indices all closed up, with the ChiNext 50 leading with a nearly 60% annual increase. Most sectors in the CITIC primary industry index closed up, with the communication index leading with an over 80% increase. The share of equity ETFs increased, and northbound capital and margin trading funds were active [9][17][24] - **Macroeconomic Outlook**: In 2026, overseas liquidity may remain loose, and Sino-US economic and trade relations are in a phase of relaxation. Domestically, policies will be more precise and targeted, with fiscal policy remaining proactive and monetary policy staying moderately loose. Growth factors are expected to improve, and inflation is expected to rise moderately, driving the PPI to recover and improving corporate profitability [27][28][30] 2. Valuation and Drivers - **Steady Return of Chinese Capital Pricing Power**: The influence of US Treasury yields on A-share valuations is gradually weakening, while the impact of Chinese Treasury yields on the growth style is increasing, indicating a strengthening of the pricing power of Chinese Treasury yields for growth stocks [33][38] - **Current Valuation's Historical Position and Horizontal Comparison**: The PE of the CSI 300 and ChiNext indices is at the 64% and 35% historical quantiles respectively, not in a high range. Compared with global indices, A-shares are not expensive. The "Buffett Index" also suggests that the A-share market still has investment value [42][46][50] - **Dividend Yield and Risk Premium**: There is a "seesaw" relationship between the 10-year Chinese Treasury yield and the dividend yield of the dividend index. Currently, the stock market still has strong allocation cost-effectiveness, and the benchmark scenario for the index's upward drive in 2026 is expected to shift from valuation-driven to earnings-driven [53][59][63] - **Earnings Growth as a Strong Support for Relatively Strong Indices**: Earnings growth supports the relative strength of corresponding indices. In 2025, the earnings and revenue of small-cap and growth-style indices recovered faster, corresponding to the market style of small-cap growth [64][67][70] 3. Investor Structure and Basis Central Tendency Outlook - **2025 Basis Review**: In 2025, the basis central tendency of most futures index varieties continued to decline, with increased volatility in April. The influence of investor structure changes on the basis is significant, with the basis weakening in the first quarter and the basis central tendency of IC and IM contracts being lower than in previous years in the second half of the year [80] - **Changes in the Position of Public Funds in the Market Investor Structure**: Since 2022, the long-hedging power of public funds has gradually emerged and is currently stronger than the short-hedging power [88] - **Impact of Off-exchange Product Hedging on the Futures Index Basis**: The scale of off-exchange derivatives represented by snowball products decreased significantly in 2025, and their hedging impact is weaker than in the past two years. The long-substitution strategy of public funds is gradually emerging, and the relaxation of the futures index position limit of public funds may make them an important variable in observing the futures index investor structure [79][90] 4. Operation Outlook and Response - **Operation Outlook Scenario Analysis and Market Characteristics**: The benchmark scenario for the 2026 market is that the equity market shifts from valuation-driven to earnings-driven. There are also three other scenarios: earnings and valuation double-driven strength, valuation drag on weakness, and double weakness in earnings and valuation with risk warnings [114][118][119] - **Response Strategies under Different Scenarios**: Under the benchmark scenario, consider long-hedging when the basis is relatively weak. In the stronger scenario, reduce short-hedging. In the weaker scenario, lock in lower short-hedging costs. In the double-weak scenario, increase short-hedging [121][122]

Core Viewpoint - The article discusses the evolution of the Chinese asset management industry, highlighting the differentiation between public and private funds, and how Huaxia Capital has carved out a unique niche by focusing on absolute returns through innovative derivative products [1][20]. Group 1: Huaxia Capital's Strategy - Huaxia Capital has developed a differentiated approach centered around three main strategies: "strategy assurance," "steady income," and "aggressive appreciation," providing a multi-asset solution for investors seeking clear absolute returns [1]. - Since entering the derivatives market in 2020, Huaxia Capital has issued products totaling over 100 billion, becoming a significant player in areas like "Xueqiu" and "alternative fixed income+" [1]. Group 2: Snowball Strategy - The "Snowball" strategy converts market volatility into sustainable returns, relying on structured designs that generate income as long as the index does not fall below a predetermined "safety cushion" [3][4]. - As of November 30, 2025, Huaxia Capital has launched over 500 Snowball products, with a success rate exceeding 99% and an average annual return of 14% for completed products [4]. Group 3: Core Competencies - Huaxia Capital prioritizes the interests of its investors, proactively adjusting product structures to mitigate risks, as seen in its cautious approach during market peaks [5]. - The company pioneered a "joint distribution" model to lower investment thresholds, allowing for the successful issuance of over 200 Snowball products with a total fundraising of over 28 billion [5]. - A refined online inquiry system has been established to enhance trading efficiency, allowing Huaxia Capital to secure better pricing and strengthen long-term relationships with trading partners [6]. Group 4: On-Site Derivatives - Huaxia Capital has developed two main product lines in on-site derivatives: income-generating strategies and tool-based strategies, with the covered call strategy being a key offering [8]. - The covered call strategy, particularly effective in a low-interest environment, aims to provide dual benefits of enhanced dividends and downside protection [9]. Group 5: Alternative Fixed Income+ - The "alternative fixed income+" model introduces clarity in return structures and risk characteristics, utilizing options to enhance income while providing transparent investment experiences [12]. - This strategy includes various core elements such as underlying assets, linked assets, and derivative contracts, allowing for flexible customization to meet diverse investor needs [12]. Group 6: Low-Volatility All-Weather FOF - The all-weather FOF aims to provide stable returns amidst increasing asset volatility, utilizing a risk parity model with a unique volatility control module [15][16]. - Huaxia Capital's all-weather FOF targets a volatility rate of 4.5%, significantly lower than many competitors, achieving a Sharpe ratio exceeding 3 since its inception [17]. Group 7: Market Positioning - In a low-risk return environment, Huaxia Capital has positioned itself as a provider of "alternative investments," addressing the growing demand for stable returns among high-net-worth clients [19]. - The company’s innovative spirit and commitment to continuous product iteration have allowed it to stand out in the asset management industry, aligning with the evolving needs of investors [20].

Core Viewpoint - South Korean financial regulators have notified five local banks of impending fines totaling approximately 2 trillion KRW (around 9.6 billion RMB) for improper sales of "snowball" products, marking a significant regulatory action since the enactment of the Financial Consumer Protection Act in 2021 [1] Group 1: Regulatory Actions - The five banks involved are Standard Chartered Korea, KB Kookmin Bank, Shinhan Bank, Hana Bank, and NongHyup Bank, with final decisions on the fines expected next month [1] - This fine represents the first instance of penalties reaching the trillion KRW scale under the Financial Consumer Protection Act [1] Group 2: Background of the Issue - The controversy stems from the "Korean Snowball Crisis," which involves equity-linked securities (ELS) that function similarly to selling put options on stock indices, offering promised returns unless the index falls below a certain threshold [1][2] - These products gained popularity among retail investors in South Korea, particularly among middle-aged and elderly individuals seeking low-risk investment options [2] Group 3: Financial Impact - As of September last year, accounts linked to H-shares in ELS reported a total principal loss of 10.4 trillion KRW, with losses amounting to 4.6 trillion KRW [3] - The South Korean market has approximately 19.3 trillion KRW in outstanding snowball products, with over 17.7 trillion KRW held by individual investors, including more than 25% owned by individuals aged 65 and older [3] Group 4: Historical Context - Previous incidents have led to regulatory actions, such as in 2019 when financial institutions were ordered to return up to 80% of losses incurred by investors in interest rate derivative products [4] - The structured product market in South Korea, valued at 96 trillion KRW, has faced multiple external shocks, including significant market events in 2015, 2016, and 2020 [5]

Investment Rating - The investment rating for the non-bank financial industry is "Positive" (first-time rating) [4] Core Viewpoints - The non-bank financial sector has underperformed compared to the overall A-share market, with a year-to-date increase of 10.6% as of October 14, 2025, while the Wind All A Index has grown by 23.5%. However, the sector is expected to present investment opportunities driven by performance and changes in market preferences [4] - Strong third-quarter earnings expectations are anticipated to drive valuation growth, particularly in the insurance sector, where companies like New China Life Insurance are expected to see a net profit increase of 45%-65% year-on-year [5][6] - The report highlights a relative "mismatch" between performance and valuation, suggesting that the insurance companies' equity holdings have significantly increased, which will positively impact their investment income and net profit [5][6] Summary by Sections Insurance Sector - New China Life Insurance's net profit for the first three quarters of 2025 is expected to grow by 45%-65% compared to the same period in 2024, exceeding market expectations [6] - Major insurance companies have seen substantial growth in their equity holdings, with China Life, Ping An, and China Pacific's equity and equity fund holdings increasing significantly from June 2024 to June 2025 [6][9] - The PEV valuation points for China Life, Ping An, and China Pacific are at 45.2%, 56.3%, and 62.1% respectively, indicating potential for further valuation improvement supported by regulatory policies and market conditions [6][9] Brokerage Sector - The brokerage sector is expected to benefit from an active equity capital market in Q3 2025, with a 213% year-on-year increase in average daily trading volume and a 56% increase in average margin financing balance [7] - The current PB ratio for the brokerage industry is approximately 1.42 times, which is at the 61% percentile since 2020, indicating a favorable valuation environment [7] Market Preference Changes - Increased global political and economic uncertainties may lead to a shift from high-valuation to lower-valuation sectors, with the financial industry potentially serving as a medium for such transitions [8] - Historical performance indicates that the non-bank financial sector has shown strong performance during periods of rising risk appetite, suggesting a potential rebound in the near future [8]

Core Insights - The forum discussed the differentiated survival strategies for securities asset management in the context of evolving market demands and regulatory changes [1][5][6] - Key industry leaders emphasized the importance of absolute returns and tailored investment products to meet client needs [3][14][16] Group 1: Market Trends and Insights - The market has seen significant institutional investment, particularly from insurance funds, with expectations for new opportunities in the second half of the year [2][26] - The equity market is expected to continue its upward trend, supported by improving liquidity and economic fundamentals [21][26] - Four main investment themes are anticipated to drive market rotation: technology innovation led by AI, high-dividend stable assets, Chinese companies' overseas expansion, and domestic supply-demand reversals [21][22] Group 2: Differentiated Strategies - Securities asset management firms are shifting from a scale-oriented approach to one focused on investor interests, emphasizing research capabilities and long-term investment teams [10][12] - Companies are encouraged to develop unique product lines that provide absolute returns and meet specific investment goals, ensuring long-term viability [3][14] - The integration of quantitative and subjective investment strategies is seen as a way to enhance market understanding and improve investment outcomes [18][19] Group 3: Product Development and Client Focus - Firms are focusing on creating products that deliver value to clients, particularly in absolute return strategies and customized investment solutions [14][16] - The importance of a sales-driven approach in asset management is highlighted, with a need to educate clients on asset allocation and investment strategies [16][17] - The development of innovative financial products, such as ETFs and customized investment vehicles, is crucial for meeting diverse investor needs [12][13] Group 4: Future Outlook - The market is positioned for positive developments, with expectations of increased capital inflows and a favorable economic environment in the coming year [21][26] - Companies are advised to focus on sectors with reasonable valuations and strong competitive positions, particularly in technology and manufacturing [24][26] - The emphasis on long-term investment strategies and the cultivation of specialized research teams will be vital for future growth in the asset management industry [10][12]

Market Performance - The A-share market has reached multiple records, with the Shanghai Composite Index surpassing 3800 points for the first time since August 2015, and a total trading volume of 2.58 trillion yuan, marking the eighth consecutive day above 2 trillion yuan [2] - As of August 13, the Shanghai Composite Index closed at 3683.46 points, a new high since December 2021, with trading volume peaking at 2.28 trillion yuan [9][13] Investor Sentiment - The recovery of the market has reignited investor enthusiasm, with 14.56 million new accounts opened in the first seven months of the year, a year-on-year increase of 36.88% [3] - There is a noticeable increase in the number of new accounts and trading volume, indicating a shift of personal savings into the stock market [4][6] Brokerage Activity - Brokerages are experiencing a surge in activity, with many reporting significant increases in new account openings and trading volumes [6][9] - Some brokerages have lowered commission rates to attract new clients, with rates dropping to below 0.1% for new accounts [10] Financial Institutions' Performance - There is a divergence in performance among financial institutions, with brokerage firms thriving while banks and insurance outlets are seeing reduced activity [5][17] - Banks are experiencing a decline in client interest in stock market investments, with many clients still preferring low-risk products [18][19] Insurance Sector Impact - The insurance sector is facing challenges as clients shift their budgets from insurance products to stock investments, particularly in light of declining interest rates for insurance products [22][24] - Insurance agents report difficulties in maintaining sales momentum due to the attractiveness of stock market returns compared to insurance products [27][28]

Group 1 - The article introduces various common options strategies and highlights the backtesting results of a covered call strategy in the A-share market, showing significant excess returns during downtrends and sideways phases compared to holding ETFs [1] - The Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Financial Futures Exchange provide various options based on broad indices and ETFs, with the trading volume of options gradually increasing, particularly the daily trading volume of the CSI 1000 options reaching around 1.9 billion [1] - Common options strategies can be categorized into single-leg strategies, spread strategies, hedging protection strategies, volatility strategies, and exotic strategies, with exotic strategies like Snowball and Vanilla gaining popularity in recent years, although options-related strategies are still relatively rare in domestic public funds [1] Group 2 - In overseas markets, covered call and hedging products are developing rapidly, with examples like RYLD and QYLD, which effectively reduce the net asset value volatility of their underlying indices [2] - The Russell 2000 index has been in a wide-ranging fluctuation since 2021, and RYLD's net asset value volatility is significantly lower than that of the index, providing a better holding experience for investors [2] - However, in trending upward markets, while covered call products can reduce volatility, their returns often lag behind the underlying index, as evidenced by QYLD's performance being significantly lower than that of the Nasdaq 100 index since 2021 [2] Group 3 - The backtesting results of the covered call strategy using existing 300ETF and 500ETF options indicate that the strategy significantly smooths the net asset value trajectory, with most performance metrics outperforming pure holding of the 300ETF, reducing the maximum drawdown from 42% to 22% [3] - During downtrends and sideways phases in the CSI 300, the covered call strategy clearly outperforms pure holding of ETFs, with better results observed in years with significant declines (2022, 2023) when using in-the-money options [3] - In years with smaller declines (2021), both in-the-money and out-of-the-money options can enhance returns, while in years with smaller gains (2025 to present), higher out-of-the-money options can boost returns; however, in years with larger gains (2020 and 2024), the covered call strategy underperforms direct ETF holdings [3]

Report Overview - Report Title: How to Construct Option Trading Strategies - Option Strategy Details (Part Two) [1] - Report Date: July 25, 2025 [1] - Analysts: Cheng Bingzhe, Zhang Shuai [2] Core Viewpoint - The real charm of options lies in constructing diverse trading strategies through combining different contracts, precisely expressing specific views on the market, and controlling risks and returns within a preset range [3][9]. - All option strategies are based on processing basic option positions to adapt to different market environments and manage risks. Understanding the option structure behind these strategies is the key to identifying their real risk and return sources [3][17]. Industry Investment Rating - Not mentioned in the report. Summary by Directory 1. On - site Option Strategies - Single - leg trading, which involves directly buying or selling call or put options, is the cornerstone of complex trading. Buying call options is suitable for bullish markets with limited cost and unlimited theoretical returns, while buying put options is for bearish markets. Selling options aims to earn stable cash flow but bears the risk of exercise. The covered call strategy, which combines with the underlying asset, is a relatively stable return - enhancement strategy [10]. - When investors have more refined views on the market, they can use combination strategies. Directional combinations like bull spreads are suitable for moderately bullish markets, and bear spreads for moderately bearish markets. Butterfly spreads are used for markets with narrow - range fluctuations. Volatility strategies such as straddle combinations are for markets with significant but uncertain - direction fluctuations. Calendar spreads use the time - value difference between different - maturity contracts and are suitable for stable or moderately volatile markets [11][13] 2. Off - site Option Strategies - Off - site options are customized agreements between financial institutions and customers to meet special risk - management needs. The "Snowball" product is well - known. Investors can get high coupons in a moderately rising or volatile market but face principal - loss risks in a sharp - falling market. The Dynamic Coupon Note (DCN) is a more flexible "Snowball - like" product. It optimizes cash flow and meets regulatory requirements but still has risks, such as one - time principal loss at maturity and dependence on the futures discount environment [15][16]

Investment Rating - The report maintains an "Outperform the Market" rating for the securities industry [3][38]. Core Viewpoints - The recent focus on Dynamic Coupon Notes (DCN) highlights the potential for high returns through structured products linked to underlying assets, supported by various market strategies [1][12]. - The development of over-the-counter derivatives is beneficial for brokers in exploring balance sheet operations and enhancing market stability [2][12]. - The report indicates a contraction in trading volumes and a decrease in the scale of stock holdings, with specific metrics showing a decline in IPOs and refinancing activities [3][37]. Summary by Sections Industry Overview - The report discusses the increasing popularity of DCN products, which offer attractive returns through mechanisms such as Delta hedging and the use of margin trading in futures [1][12]. - It emphasizes the role of over-the-counter derivatives in reducing pressure on stock index futures and meeting diverse investor needs [2]. Market Performance - In May, the average daily trading volume for A-shares was 12,148 billion, reflecting a month-on-month decrease of 1.7% but a year-on-year increase of 43.3% [3][37]. - The report notes a significant drop in IPO activities, with only 6 companies raising 34.564 billion, a 58.2% decrease from the previous month [3][37]. Company Profit Forecasts and Investment Ratings - Key companies such as CITIC Securities, Huatai Securities, Guolian Minsheng, and Dongfang Caifu are all rated as "Outperform the Market" with specific earnings per share (EPS) forecasts for 2025 and 2026 [4][57]. - CITIC Securities is projected to have an EPS of 1.39 in 2025, while Huatai Securities is expected to have an EPS of 1.59 [4][57]. Investment Recommendations - The report suggests focusing on leading brokers like CITIC Securities and Huatai Securities, as well as recommending Dongfang Caifu and Guolian Minsheng for their strong market positions and operational integration [3][38].