Case studies · 2019
The SSE 50 ETF option that rose 192 times in a day
A deep out-of-the-money option two days from expiry rose 192 times in one morning when the market jumped, then expired far below its peak.
What happened
A contract priced for a bottle of water
Through 22-24 February 2019, a contract on the Shanghai Stock Exchange called "50ETF purchase February 2800" (华夏上证50ETF购2月2800) traded deep out of the money. It was a European-style call, struck at RMB 2.80 on the Huaxia SSE 50 ETF (ticker 510050), due to expire just two trading days later on 27 February 2019. The ETF, which tracks the 50 largest and most liquid stocks on the Shanghai Stock Exchange, sat around RMB 2.618 through those three sessions, more than 18 fen below the strike. The option's price reflected that distance: about RMB 0.0003 per unit. The exchange-standard lot is 10,000 ETF units, so a full contract cost about RMB 3, roughly the price of a bottle of water.
The jump
Mainland Chinese equities opened sharply higher on 25 February 2019 and kept climbing through the session. The Shanghai Composite rose about 5.6% and the CSI 300 about 6% intraday, one of the sharpest sessions of that year's rally. The 50 ETF closed the day at RMB 2.816, up 7.56% on the session, and the move carried the strike of RMB 2.80 within reach. The contract opened at about RMB 0.0006 and closed at about RMB 0.0581, a rise of roughly 192 times its previous close. With the ETF now just above the strike, the option had flipped from deep out of the money to barely in the money in a single session. Chinese financial media seized on the multiple, and it became a widely repeated headline number through March and April 2019.
The reversal
The rally stalled the next day, 26 February, and the ETF fell back to RMB 2.728, down about 3.1%. The same option contract fell 91.74% in a single session, to about RMB 0.0048. On 27 February, expiry day, the ETF closed below the RMB 2.80 strike, so the call expired out of the money. Reports put the final settlement price at about RMB 0.0001, effectively zero. Whoever bought near the peak on 25 February lost most of that value within 48 hours, and whoever bought at expiry-minus-two-days prices and held to the end lost almost everything.
The aftermath
Chinese financial press, including the Economic Observer, China Securities Journal and Yicai, returned to this episode repeatedly over the following weeks. Similar short-dated, deep out-of-the-money contracts kept producing smaller versions of the same pattern, earning the nickname "doomsday roll" (末日轮) in Chinese market commentary. The exchange and fund managers used the episode to warn retail investors publicly against treating these contracts as lottery tickets.
| Date | Event |
|---|---|
| 9 Feb 2015 | SSE lists China's first exchange-traded stock option, the SSE 50 ETF option on the Huaxia SSE 50 ETF (510050), approved by the CSRC. Contract unit is 10,000 ETF units, European exercise. |
| 22-24 Feb 2019 | The "50ETF purchase February 2800" call (strike RMB 2.80, expiry 27 Feb 2019) trades deep out of the money, worth about RMB 0.0003 per unit while the ETF sits around RMB 2.618. |
| 25 Feb 2019 | Mainland equities jump; the Shanghai Composite rises about 5.6% and the CSI 300 about 6% intraday. The ETF closes at RMB 2.816, up 7.56% on the day. The 2.80 call opens near RMB 0.0006 and closes near RMB 0.0581, roughly 192 times its previous close. |
| 26 Feb 2019 | The rally stalls. The ETF falls to RMB 2.728 (down about 3.1%). The same option falls 91.74% in a single session, to about RMB 0.0048. |
| 27 Feb 2019 | Expiry day. The ETF closes below the RMB 2.80 strike, so the call expires out of the money. Reports put the final settlement at about RMB 0.0001, effectively zero. |
| Mar-Apr 2019 | Chinese financial press revisits the episode repeatedly as similar short-dated, deep out-of-the-money contracts produce smaller but similar spikes. The exchange and fund managers publicly warn retail investors against treating these contracts as lottery tickets. |
The mechanics, in course language
Whose side of the trade this is
The contract itself was a European-style call on the SSE 50 ETF, listed under the SSE's options programme, the mainland's first listed stock option market, launched in 2015. The buyer is long a call; whoever sold it is short, either a covered writer holding the ETF or a market maker. The case sits on the option owner's side of the trade, not the seller's margin, so the analysis stays inside option mechanics rather than crossing into margining.
A premium built almost entirely from time value
The core idea at work is moneyness: intrinsic value is the greater of zero and spot minus strike, and time value is whatever is left in the premium once that intrinsic value is subtracted out. Time value peaks when the option is at the money and thins out fast the further out of the money and the closer to expiry the contract gets. Two trading days before expiry, with the strike RMB 0.182 above the spot price, this contract's premium of RMB 0.0003 was almost entirely time value. It was a small, fragile bet that the ETF would rally enough, soon enough, to bring the strike into range, with almost no intrinsic value and therefore almost no floor.
Leverage built into the contract, not borrowed
The ETF then jumped 7.56% in a single session, and the strike came within reach. Intrinsic value appeared where there had been essentially none. Because the starting premium was so tiny, the percentage move in the option's price was enormous even though the move in the underlying was ordinary by market standards. This is leverage that lives inside the option's own structure, not leverage from borrowed money. The buyer posted no margin and took out no loan. The entire 192-times move is a property of the contract: a claim on the tail of the underlying's distribution, priced cheaply because that tail looked unlikely two days out.
Bounded downside for the buyer, open-ended for the seller
The asymmetry between buyer and seller sets the outer bounds of the story. The buyer's maximum loss was capped at the premium paid, about RMB 3 for a full contract at the previous close. Whoever was short this contract without a matching ETF position faced the mirror-image, open-ended loss until expiry. That asymmetry between bounded downside for the buyer and unbounded downside for an uncovered seller is why a contract like this can rise 192 times and still leave the buyer's worst case perfectly well defined in advance. The case is precise in what it does not show. It is not a margin-call story, not a clearing-house default, and not a cost-of-carry or arbitrage failure. The lesson stays confined to moneyness, time value and the leverage that sits inside an option's structure near expiry.
The mathematics
Two definitions fix how much of the 25 February premium was a real, locked-in payoff and how much was still a bet on further movement. Intrinsic value is the option's payoff if exercised immediately; time value is whatever is left in the premium once that payoff is subtracted out:
$$\text{Intrinsic value} = \max(S_0 - K,\ 0)$$
$$\text{Time value} = \text{Premium} - \text{Intrinsic value}$$
Applied to the 25 February close, with the ETF at RMB 2.816, strike RMB 2.80, and the option premium at RMB 0.0581 per unit, the split comes out as follows:
$$\text{Intrinsic value} = \max(2.816 - 2.80,\ 0) = 0.016$$
$$\text{Time value} = 0.0581 - 0.016 = 0.0421$$
Even after the jump put the option barely in the money, most of the premium, RMB 0.0421 out of RMB 0.0581, was still time value rather than intrinsic value. The contract economics for a full lot follow the same inputs through:
lot = 10_000 # units per contract, SSE standard
prev_close = 0.0003 # RMB per unit, 24 Feb 2019 close
close_25feb = 0.0581 # RMB per unit, 25 Feb 2019 close
etf_close_25feb = 2.816 # RMB, underlying close 25 Feb 2019
strike = 2.80
# Cost of one contract at the previous close
cost_per_contract = prev_close * lot
# Value of one contract at the 25 Feb close
value_per_contract = close_25feb * lot
# Headline multiple
multiple = close_25feb / prev_close
# Intrinsic and time value at the 25 Feb close
intrinsic = max(etf_close_25feb - strike, 0)
time_value = close_25feb - intrinsic
# Implied one-day elasticity of the option versus the underlying
etf_move_pct = 7.56
option_move_pct = (multiple - 1) * 100
elasticity = option_move_pct / etf_move_pctOutput
cost_per_contract = RMB 3.00
value_per_contract = RMB 581.00
multiple = 193.7 (press and course round this to "192 times")
intrinsic = 0.016
time_value = 0.0421
option_move_pct = 19,270%
elasticity = about 2,550The direct division gives 193.7, not exactly 192. RMB 0.0581 divided by RMB 0.0003 comes out to 193.7 because the previous close is only quoted to four decimal places in the original Chinese sources, as "about RMB 0.0003". A slightly higher true value, for example RMB 0.000303, would reconcile to almost exactly 192. Every source, and this course's own lecture, converge on "192 times" as the headline figure, and the small gap is best read as rounding in the reported input rather than a mistake in the arithmetic.
Data and facts
| Quantity | Value | Source |
|---|---|---|
| Underlying ETF close, 24 Feb 2019 | RMB 2.618 | Economic Observer, 13 Mar 2019 |
| Underlying ETF close, 25 Feb 2019 | RMB 2.816 (+7.56%) | Economic Observer; China Securities Journal, 26 Feb 2019 |
| Option previous close, 24 Feb 2019 | about RMB 0.0003 | Economic Observer, 24 Apr 2019 |
| Option opening price, 25 Feb 2019 | about RMB 0.0006 | Economic Observer, 24 Apr 2019 |
| Option closing price, 25 Feb 2019 | about RMB 0.0581 | Economic Observer, 24 Apr 2019 |
| Headline multiple | roughly 192 times | Economic Observer; The Paper; Yicai; Sina Finance |
| Intrinsic value at 25 Feb close | RMB 0.016 | Recomputed from sourced inputs |
| Time value at 25 Feb close | RMB 0.0421 | Recomputed from sourced inputs |
| Underlying close, 26 Feb 2019 | RMB 2.728 (down about 3.1%) | Economic Observer, 24 Apr 2019 |
| Option close, 26 Feb 2019 | about RMB 0.0048 (−91.74%) | Economic Observer, 24 Apr 2019 |
| Option value at expiry, 27 Feb 2019 | about RMB 0.0001 | Economic Observer; Zhihu explainer |
| Contract unit (lot size) | 10,000 ETF units | SSE contract specification |
| Exercise style | European (at expiry only) | SSE contract specification |
| SSE 50 ETF option listing date | 9 Feb 2015 | SSE listing notice |
| Broad market context, 25 Feb 2019 | CSI 300 +6%, Shanghai Composite +5.6% intraday | Bloomberg, 25 Feb 2019 |
The lesson
- A premium that is almost entirely time value has almost no floor: far out of the money and close to expiry, an option's price is a bet on a specific short-term move, not a claim on anything already realised.
- Leverage lives inside the option's structure, not just in borrowed money: the buyer posted no margin and took no loan, yet a 7.56% move in the underlying produced something on the order of a 190-fold move in the contract, an elasticity of roughly 2,500.
- The buyer's maximum loss is capped at the premium paid, here about RMB 3 per contract at the previous close, and that asymmetry is exactly why the contract could rise 192 times and still leave the buyer's downside bounded.
- A single day's headline multiple is not a strategy: the same contract gave back 91.74% the very next session and expired at essentially zero two days after its peak, so whoever did not sell into the spike kept none of the 192 times.
- Concentrated, short-dated, deep out-of-the-money contracts behave like lottery tickets because that is what the pricing says they are: cheap for a reason, and the reason is a low, but not zero, chance of a large payout.
Where it appears in the course
Think about it
- If you had bought this contract at the previous close, about RMB 3 for a full lot, and watched it close at RMB 581 the next day, what would make you sell versus hold into expiry?
- The option's time value was still about 72% of its premium even after the ETF traded above the strike. What does that tell you about how much of an option's price near expiry reflects genuine uncertainty rather than a locked-in payoff?
- Deep out-of-the-money, short-dated options are sometimes compared to lottery tickets. Where does that comparison hold up, and where does it break down once you think about who is on the other side of the trade?
Sources
- Economic Observer (经济观察网), "192倍'造富神话'背后 投资者疯狂抢筹深度虚值看涨期权" ("Behind the '192-times wealth-creation myth': investors rush to buy deep out-of-the-money calls"), 13 March 2019. eeo.com.cn
- Economic Observer (经济观察网), "市场再无192倍暴富神话 13万手四月50ETF到期合约或'归零'" ("No more 192-times riches-overnight myth: 130,000 lots of April 50 ETF expiry contracts may go to zero"), 24 April 2019. eeo.com.cn
- China Securities Journal (中证网), "偶然而非常态 期权投资需谨慎" ("A one-off, not the norm: option investing needs caution"), 26 February 2019. cs.com.cn
- The Paper (澎湃新闻), "暴涨192倍次日暴跌92%，50ETF期权为何遭遇过山车" ("Up 192 times then down 92% the next day: why did the 50 ETF option go through a rollercoaster"), late February 2019. thepaper.cn
- Yicai (第一财经), "暴涨192倍的神话不再，这个50ETF期权合约价值归零" ("The 192-times myth is over: this 50 ETF option contract's value has gone to zero"). yicai.com
- Shanghai Stock Exchange, SSE 50 ETF Options contract specification (English). english.sse.com.cn
- Shanghai Stock Exchange, "关于上证50ETF期权合约品种上市交易有关事项的通知" ("Notice on matters relating to the listing and trading of SSE 50 ETF option contracts"), 2015 listing notice. sse.com.cn
- Bloomberg, "China Stocks' Trillion-Dollar Rally Pushes Another Index Toward Bull Market", 25 February 2019. bloomberg.com
- Zhihu (知乎) explainer, "上证50ETF期权一合约暴涨192倍，怎么回事？" ("An SSE 50 ETF option contract surged 192 times, what happened?"). zhihu.com
