Ants Traveling Between Heaven and Hell... Crude Oil Derivatives Market Turned into a Speculative Arena

Speculative Trading Overheated Targeting Korean Medicine
Despite Repeated Warnings from Korea Exchange
Daily Net Buying Exceeds 100 Billion Won

[Asia Economy Reporter Oh Ju-yeon] "Yesterday it was inverse, today it's crude oil... I can't get a grip on it." (Crude oil futures investor)

"Yesterday's 24% profit shrank to 3%." (Crude oil inverse investor)

Individual investors, who earned the nickname "Smart Ants" by buying low and investing long-term mainly in large-cap stocks like Samsung Electronics during the market crash caused by the novel coronavirus (COVID-19), have been caught up in speculative trading amid the wild fluctuations of international crude oil prices. Crude oil derivatives, unfamiliar to the general public, have topped the stock search rankings, and the daily average purchase volume of crude oil derivatives, which was only about 100 million KRW last year, has recently exceeded 100 billion KRW. As the prices were excessively overvalued compared to the underlying assets, the Korea Exchange issued repeated warnings about loss risks due to the premium rate differences. However, investors aiming for a "big hit" continue to trade inverse and leveraged exchange-traded funds (ETFs) like a flip game.

[Image source=Yonhap News]

According to the Korea Exchange on the 23rd, from the 1st to the 22nd of this month, the stock most purchased by individuals in the KOSPI market was the KODEX WTI Crude Oil Futures (H) ETF, with purchases totaling 1.1419 trillion KRW. After the May delivery West Texas Intermediate (WTI) crude oil price plunged to -37.63 USD per barrel, the buying momentum intensified under the judgment that "there will be no further decline," resulting in net purchases of 507.5 billion KRW.

However, continuous declines caused losses to snowball. The loss rate over just three trading days reached -37.54%, due to a 10% drop followed by consecutive limit-downs. The "Shinhan Leverage WTI Crude Oil Futures Listed ETN (H)," which was priced in the 10,000 KRW range until February last month, has become a penny stock at 650 KRW.

Conversely, inverse investors smiled broadly during this period. The KODEX WTI Crude Oil Futures Inverse (H) ETF surged 43.63% from 26,070 KRW on the 20th to 37,445 KRW on the 22nd. On the 22nd, when June WTI crude oil also plunged following the May contract, the "Samsung Inverse 2X WTI Crude Oil Futures ETN," which tracks twice the inverse of the underlying asset's decline, rose 59.98% in a single day. It closed at 21,685 KRW on the 22nd, up from 11,765 KRW on the 20th, marking an 84.31% increase over three trading days.

The next day, crude oil prices rebounded sharply, causing fortunes to diverge again. U.S. President Donald Trump issued a warning message to Iran on social networking services (SNS), causing June WTI to surge about 40% intraday. On that morning, inverse ETFs fell, trading at prices down by more than 10% compared to the previous day. The most heavily purchased "KODEX WTI Crude Oil Futures Inverse (H)" opened the session down 15%, but thanks to continued buying and a temporary reversal to a price decline in crude oil during the morning, it rebounded by over 5%, resulting in a volatility range of 25%.

The Korea Exchange applied call auction trading from that day for the KODEX WTI Crude Oil Futures (H) ETF, whose premium rate exceeded 30%. Under call auction trading, the exchange accepts bids every 30 minutes and executes trades at a single price (consolidated price). Additionally, the exchange warned that if the WTI futures price falls by more than 50%, investors in WTI futures leveraged ETNs could suffer a total loss of their investment principal.

According to the exchange, from early last month to the 22nd, individuals poured 585.7 billion KRW into eight ETN stocks that profit from rising oil prices and 1.8509 trillion KRW into two crude oil ETFs, totaling 2.4366 trillion KRW in personal investment funds.

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