Crude Oil DLS Principal Loss... WTI Investment Amount Reaches 1 Trillion Won

[Asia Economy Reporter Minji Lee] Due to the sharp drop in international oil prices, investment funds flowing into oil-related derivative-linked securities (DLS) are facing the risk of principal loss. Investment funds related to West Texas Intermediate (WTI) DLS alone amount to 1 trillion won.

According to the Korea Securities Depository on the 21st, as of the end of March, the outstanding balance of derivative-linked securities (DLS) containing WTI was 922.6 billion won. This is similar to the previous month's 913.9 billion won, indicating that DLS issuance has decreased, and early redemption has not proceeded smoothly due to the decline in oil prices. Last month, only four DLS were issued based on WTI, totaling 5.731 billion won.

These DLS were mostly issued when WTI prices were around $50 to $60. Considering the negative oil prices, most appear to have entered the loss zone or fallen below the lowest evaluation price. Investors who aimed for early redemption are now in a situation where they must wait until maturity. DLS incur principal loss if the underlying asset price falls into the knock-in zone (typically 40-60% of the initial price), depending on the maturity price relative to the initial price.

Jin Jonghyun, a researcher at Samsung Securities, explained, "Recently issued DLS evaluate early redemption or knock-in (loss zone) based on the underlying asset with the lowest performance among the underlying assets," adding, "Due to the plunge in international oil prices, regardless of the performance of other underlying assets, the price has fallen below the loss zone or failed to secure early redemption opportunities."

After the collapse of the production cut agreement by OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC coalition) on the 9th of last month, oil prices plummeted, making it difficult for exchange-traded fund (ETF) investors who had bet early on rising oil prices to avoid large losses. For example, the 'KODEX WTI Crude Oil Futures' fell 42% from 11,015 won on the 9th of last month to 6,340 won the day before. Similarly, 'TIGER Crude Oil Futures Enhanced (H)' dropped about 25% over the same period.

This content was produced with the assistance of AI translation services.