Gate.io Structured Products: Where do risks and returns come from?

2022-04-01, 08:59

1. Shark fin is a principal guaranteed low-risk financial product. It is named so because its yield curve structure is similar to shark fin emerging from the water.

2. Shark fin option actually sets a price "knock-out range" for ordinary call or put options.

3. If the user has a clear prediction of the price trend of the underlying asset, wants to obtain the call returns of the option, but believes that the rise of the underlying asset price is limited and is unwilling to pay for the full rise potential, he/she can choose to call shark fin products to win the highest earnings when the price of the underlying asset is slightly lower than the knock-out price.

4. According to the corresponding option type, shark fin products can be divided into three categories: bullish shark fin, bearish shark fin and bidirectional shark fin.

5. When the price of the underlying asset changes little (generally less than 1000), the purchase bumpy can obtain higher returns.

Structured product is a new financial product composed of fixed income products, options and other financial derivatives. Compared with traditional current and fixed-term products, structured products superimpose the risks and benefits of derivative portfolios on the basis of the original fixed income. Today Gate.io will introduce two new products launched on the structured products page: bearish shark fins and bumpy. This article will introduce the basic principles of these two products to help readers understand the benefits and risks of structured products.

What is the shark fin option?

Shark fin is a principal guaranteed low-risk financial product. It is named so because its yield curve structure is similar to shark fin emerging from the water. In principle, shark fin is an option derivative, also known as knock-out options, which belongs to a kind of barrier option. Compared with ordinary option products, barrier options generally take effect (called knock-in) or become invalid (called knock-out) when the underlying asset price crosses a certain level, so the price is relatively low.

In the previous blog post "The Necessary Terminology for Investing in Cryptocurrency: Financial Derivatives", we briefly introduced the relevant principles of options. Options is a kind of "option to futures". When the contract buyer pays a certain premium, the buyer has the right to choose whether to trade at the strike price within a specific time. Options can be divided into call options and put options according to the buying and selling direction selected by both parties.

Shark fin option actually sets a price "knock-out range" for ordinary call or put options. If the price of the underlying asset is always within this range within the time range specified in the contract, the shark fin option is completely consistent with the ordinary call or put option; If the price of the underlying asset exceeds the preset price range, then "knock-out" will occur, resulting in the invalidation of the option. This is why such options are also known as knock-out options.

Compared with the purchase of ordinary call options, the bullish shark fin gives up the income potential when the price of some assets rises sharply, so the premium price is lower. Especially for Gate.io shark fin products, because the basic returns of fixed income products are superimposed on the financial derivatives portfolio, the product has become a principal guaranteed product, and the principal will not be lost no matter how the price changes.

For users, if they have a clear prediction of the price trend of the underlying asset, they not only want to obtain the call income of the option, but also think that the rise of the underlying asset price is limited and are unwilling to pay for the full rise potential, they can choose to bullish shark fin products, and win that the price of the underlying asset is slightly lower than the top-grade income when the price is knocked out.

According to the corresponding option type, shark fin products can be divided into three categories: bullish shark fin, bearish shark fin and bidirectional shark fin. Gate.io has previously launched structured products with different mechanisms, such as weekly shark fin, daily shark fin and bullish shark fin. The new product launched this time is a bearish shark fin product suitable for purchase when asset prices can fall under control.

For the previously launched structured products, please refer to the link: Gate.io Structured Products: Earn High Returns With A New Type of Financial Product

What is Gate.io bearish shark fin?

Similar to the example of the call shark fin option mentioned above, the put shark fin option actually sets a price knock-out range for ordinary put options. The put shark fin product launched by Gate.io this time is to superimpose the guaranteed income of fixed income products on the put shark fin option products. According to the price changes of target assets, the profit models of Gate.io's bearish shark fin products can be divided into three types.

1）Model one: during the observation period, the price of the target asset does not exceed the price range (that is, the final hit range), and the user can obtain a higher annualized rate of return (breakeven rate of return ≤ final rate of return ≤ maximum rate of return). During settlement, the closer the target asset price is to the lower limit of the price range, the higher the annual return.

2）Model two: during the observation period, if the target asset price has been lower than the lower limit of the price range and has not exceeded the upper limit of the price range (i.e. knock out the range downward), the user will obtain a medium-range yield.

3）Model three: during the observation period, if the price of the target asset has exceeded the upper limit of the price range and has not exceeded the lower limit of the price range ((i.e. knock out the range upward), the user will obtain the breakeven yield.

What is bumpy?

Bumpy is another principal guaranteed structured product recently launched by Gate.io. Its product design is similar to another non-traditional option - Double No-touch Option. Strategically speaking, bumpy belongs to the trading strategy of short volatility. When the price of the underlying asset changes little (generally less than 1000), it can obtain higher returns. Therefore, bumpy is suitable for buying when the market changes less violently.

According to the price changes of target assets, the profit models of Gate.io bumpy products are divided into two types:

1）Type one: during the observation period, the price of the target asset does not exceed the price range (i.e. hit the range), and the user can obtain a high annualized rate of return.

2）Type two: during the observation period, the target asset price has exceeded the price range (i.e. knocked out the range), and the user can obtain the breakeven rate of return.

Conclusion

Gate.io has always been committed to providing users with high-quality and safe services, constantly introducing new financial options to adapt to different scenarios and conditions, and helping users win higher returns with lower risks. In the future, Gate.io will continue to launch various new structured products. Stay tuned!

Author: Gate.io Observer: Ashley H. Translator: Joy Z.
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
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