How to Distinguish 'Real' Foreign Buying: Market Crashes Targeting Option Expiration Dates and Mid-to-Long Term Supply/Demand Analysis

Despite the recent decline in the domestic stock market, interest rate beneficiary stocks have shown significant gains. This situation contradicts the analysis that rising bond yields are the direct cause of the stock market crash. This discrepancy reveals that the current index decline is not a fundamental problem.

SK Hynix disclosed its shareholder return policy immediately after market close, blocking foreign investors' response in futures. This is interpreted as a strategic choice to curb foreign program selling and induce short covering. This shareholder return policy had an immediate defensive effect on the market.

SK Hynix's shareholder return policy demonstrates a commitment to return 50% of free cash flow (FCF). Based on this, a cumulative shareholder return of approximately 250 trillion won is estimated by 2028. The more than 40 trillion won in funds that flowed in short-term is just the beginning from a mid-to-long-term perspective.

A peculiar change in foreign supply and demand was observed about three weeks ago. It wasn't that the volume of foreign selling itself decreased, but rather that net buying entities began to enter while a consistent volume of selling occurred. This indicates that mid-to-long-term fund inflows are offsetting the impact of passive flows, and that foreign investors perceive the market as a situation where continued selling is difficult.

Stock market declines have two aspects. One is a staircase-like decline that does not significantly affect option prices, while the other is a sharp drop that explosively increases option premiums. The intentional increase in volatility through foreign futures mobilization at specific times is related to the profit generation structure on U.S. option expiration dates. This can manifest as deliberate movements to maximize profits by triggering specific option prices on the option expiration date.

Abrupt stock price fluctuations observed around the U.S. option expiration date are likely artificial movements. In particular, issues related to big tech companies tend to act as negative factors on option expiration dates, increasing market volatility. However, since such artificial volatility often sees stock prices return to their original levels after expiration, it is necessary to observe rather than react immediately to short-term movements.

The U.S. market consistently shows a structure where call options are dominant. Call option prices are very expensive, and put option prices are relatively cheap, but when these call and put option prices reverse around option expiration, enormous profits are generated. This is linked to the repeated short-term market shaking phenomenon in leading stock rallies and is used by foreign investors as a strategy to earn large profits in a short period.

A situation where stock prices fall by 50% in a month is an extremely exceptional case that I have not seen in 33 years of stock investing. Generalizing such a special exception to establish investment principles is very dangerous. It is necessary to avoid formulating investment strategies based on phenomena that occur extremely rarely in the stock market.

Specific reports, such as Morgan Stanley's 'Winter Is Coming,' may have an underlying intention to shake the market. Despite the Korean stock market's ROE rapidly growing from 7% to over 30%, indicating high value, these reports frequently change their tone due to volatility. This seems to be aimed at highlighting the undervaluation of the Korean stock market and unsettling foreign investors' sentiment.

Foreign investors use a strategy of momentarily driving down the stock prices of big tech companies before or on the option expiration date. They profit by betting on a downward trend through buying put options and selling call options, then switching to buying at low prices after the stock falls to pursue gains from subsequent price increases. In the Korean stock market, a pattern is frequently observed where, after the Chinese market opens at 10 AM on Monday, futures turn to significant selling after 10-20 minutes, triggering program selling.

Originally, stock prices were expected to rise after the next week's option expiration, but due to Tuesday's sharp decline, call option values fell, potentially bringing the rebound forward by a day or two. This suggests that stock prices could recover around the option expiration date and serves as an example of experienced investors adjusting their investment calculations using option expiration dates.

Instead of short-term market volatility, attention should be paid to the mid-to-long-term funds that have been continuously flowing in for the past three weeks. Such fund inflows increased to the extent of overwhelming selling in the week before expiration, implying that hyper-scaler earnings and expanded CapEx investment could be an inflection point. In a situation where expectations for enhanced shareholder value are growing, changes in supply and demand from a long-term perspective are even more crucial.

Even MACD, one of the highest-yielding trend indicators, has a win rate of less than 40%. This means that out of ten investments, seven will result in losses. Therefore, instead of focusing on the win rate, long-term vision and mental management are emphasized to cover seven losses with three profits. In trend trading, overcoming psychological difficulties is crucial.

Investors are strongly influenced by the psychology of selling stocks the moment they barely recover their principal after experiencing seven losses and three gains. This selling pressure is likely to coincide with the stock's peak. Instead of being swayed by break-even psychology, investing based on the company's fundamentals is important. It is necessary to invest with a long-term perspective on company value.

President Trump nominated Kevin Warsh, who was not favorable to interest rate policy, as Federal Reserve Chairman because he was a 'hands-off' managerial figure. Trump preferred a Fed that quietly managed without intervening in the market rather than a combative trader. This reflected Trump's desire for the Fed not to be overly vocal about interest rate policy.

No interest rate hike is expected before the November midterm elections. Therefore, it is necessary to pay attention to the cyclical consumer goods sector until September. While pharmaceutical stocks are expected to benefit from interest rate cuts, the biotech sector should be used as a selling opportunity. Cyclical consumer goods companies like Estée Lauder are likely to increase their investment attractiveness.