Hello! Today, I would like to discuss the recent hot potato in the market: the ‘Launch of the Samsung Electronics Leverage ETF on May 22nd’.
With the ability to apply ‘leverage’ to the national stock, Samsung Electronics, there must be many of you already cheering in anticipation, shouting, “Now if Samsung goes up, the return is doubled! Let’s go!” However, when everyone is cheering and looking in one direction (upward), wise investors like us must maintain a ‘contrarian view’. Today, I will share a somewhat chilling, true market perspective on why the launch of this leverage product could become the detonator for a ‘sudden plunge’ in the stock price.
📈 1. The May 22nd Leverage ETF Launch: Why is everyone so excited?
It’s simple. Leverage acts as a fulcrum. It’s the magic where if Samsung Electronics goes up by 1%, my return becomes 2%. In particular, there was a strong perception that Samsung Electronics is heavy and has low volatility, but adding leverage to it massively increases its appeal for short-term trading. Naturally, funds betting on the upside (Long) will flood the market with people thinking, “Samsung Electronics will eventually trend upward anyway, so buying it with leverage is an unconditional win, right?”
⚠️ 2. The Hidden Detonator Amidst the Cheers: The Trap of ‘Open Interest’
Here is a core indicator of the derivatives market that we need to pay attention to. It is ‘Open Interest’. 💡 What is Open Interest? It refers to the total sum of positions (contracts) that remain unliquidated after entering the market. Money flocking to the leverage ETF means, from the perspective of the derivatives market, that the open interest amount of ‘Long Positions’ betting on the upside is piling up like a mountain. Ordinary people think, “Since there are many buyers, the stock price will go up!” However, the mechanics of the derivatives market are slightly different. As the long position open interest grows excessively large, the risk of a ‘sudden plunge’ in the stock price actually increases exponentially. Why is that?
🔥 3. Panic Selling Breeds Panic Selling.
Leverage is not just investing with your own money. It is a structure of investing by taking on a kind of ‘debt’. If long positions betting on the upside are fully stacked, the stock price will inevitably fall. When retail investors buy, institutions sell, and the stock price drops. When retail investors dump, institutions pick it up, and the stock price rises. The pouring out of brokerage reports and market rumors are merely commentary to rationalize ‘past results’. Read the true intentions hidden behind the printed words. That is the only way to survive in the market. Let’s assume that due to macroeconomic issues or massive buying by domestic and foreign investors, Samsung Electronics’ stock price slightly dips contrary to expectations. Stock Price Decline Begins: Losses begin to register in the accounts of investors using leverage at twice the speed. Retail Losses Occur: When losses exceed a certain level, endless averaging down begins. Short Seller Liquidation: As the liquidation (profit-taking) volume of short selling and the averaging down of retail investors begin, the stock price undergoes a chain collapse. Ultimately, completely independent of fundamentals (corporate value), the accumulated leverage volume bursts, causing a phenomenon where the stock price drops vertically (plunges).
💡 Conclusion: When others are greedy with leverage, let’s look at the risks.
The launch of the Samsung Electronics Leverage ETF on May 22nd could supply massive liquidity to the market in the short term and generate cheers. But do not forget. The most dangerous market is ‘when everyone is certain of the upside and pulls full leverage’. When investing in Samsung Electronics from now on, you shouldn’t just look at charts or earnings; you must strictly check how abnormally bloated the long position open interest in the derivatives market has become. If it is right before bursting like a fully inflated balloon, it might rather be the timing to reduce your proportion and prepare for a short (decline) or secure cash. Investment opportunities always come from the ‘contrarian view’. Which perspective will you be standing with after May 22nd?
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