“Bet on a Decline, So Why?”... Even Double-Inverse Products on Samsung Electronics and SK hynix Have Been Cut in Half

[Financial News] Despite declines in Samsung Electronics Co., Ltd. and SK hynix shares, Inverse 2X (double-inverse) products have fallen to around half their peak levels. The “negative compounding effect” that occurs as share prices repeatedly rise and fall is thought to have affected returns.
According to the Korea Exchange on the 13th, double-inverse products that track the returns of Samsung Electronics Co., Ltd. and SK hynix at twice the rate in the opposite direction recorded declines of around 50% from their peaks.
The closing price of PLUS Samsung Electronics Futures Single Stock Inverse 2X was 11,725 won that day, down 49.85% from 23,380 won on July 30, when it hit its peak. Over the same period, Samsung Electronics shares fell just 0.48%, from 207,000 won to 206,000 won.
Shinhan SOL F-SK Hynix Single Stock Inverse 2X plunged 54.65% from its peak of 20,980 won (on June 8) to 9,515 won. Despite SK hynix shares falling 36.37%, from 1,911,000 won to 1,216,000 won, the double-inverse product, which is designed to profit when share prices fall, instead dropped sharply.
Inverse products are designed to track the movements of an underlying index in the opposite direction. Double-inverse products track the index’s daily returns at twice the rate in the opposite direction. A decline in the underlying index over a given period does not necessarily mean that an inverse product’s cumulative return will be twice the index’s percentage decline.
When rises and falls occur repeatedly, the so-called “negative compounding effect” can arise. For example, if a share price rises 10% in one day from 100 won and then falls 10% the next day, its final price will be 99 won. An Inverse 2X product, by contrast, would fall 20% on the first day and rise 20% the next, reducing an initial investment of 100 won to 96 won. In effect, although the underlying index fell 1%, the inverse product incurred a 4% loss.
Experts advise caution when investing in leveraged and double-inverse products in volatile markets. A securities industry source said, “Leveraged and double-inverse products can incur losses in markets with repeated sharp rises and falls, even if the underlying index moves in the direction you expect.” The source added, “We recommend focusing on products that can be held over the long term rather than short-term trading products.”

[email protected] Seo Min-ji Reporter