The situation unfolded differently from what we expected.
In just two days, the Seosung Electronics’ stock price not only didn’t drop but actually increased by 8%. The reasons were complex.
The global stock market sentiment was positive, the exchange rate was favorable, and the prices of DRAM rose.
The short selling profit rate was inversely proportional to the stock price rise at 8%.
The issue was with the put options.
With Seosung Electronics and the KOSPI index rising, the possibility of put option exercise decreased even further. Therefore, the value of the options plummeted drastically.
Billions had already evaporated.
Looking at the accounts all marked in blue, cold sweat covered my entire body. Taek-gyu didn’t say anything, but his eyes showed his confusion.
Despite the rising stock price, the L6 consistently exploded, with more than 10 incidents confirmed so far. Seosung Electronics announced they would release a statement regarding tomorrow’s ignition incident.
According to rumors, they seemed to be leaning towards the direction of battery replacement.
Online, complaints erupted.
– To replace the battery, do we have to tear apart the back cover?
– Doesn’t the waterproof function decrease then? Will they take responsibility if it gets damaged by water?
– Does it make sense to disassemble a phone that costs over a million won right after buying it?
– Paying full price for a phone just released, what a total rip-off.
– Are consumers supposed to be beta testers?
– I’ll just get a refund for the L6 and never use Seosung Electronics products again.
Taek-gyu asked me,
“They will probably discontinue it in tomorrow’s announcement, right?”
I nodded.
“Yeah, probably.”
If what my foresight showed was correct, then that would definitely happen.
***
The press conference was held at the Gangnam headquarters of Seosung Electronics regarding the L6 incident.
Seosung Electronics is a global IT manufacturing company that ranks among the top in the world. As a result, not only domestic media but also foreign journalists filled the press conference room.
IM Division President Jo Dong-jun took the stage at the press conference.
He stood in front of the microphone with a solemn expression and began speaking.
“We deeply appreciate the unwavering support of our customers who cherish and love Seosung Electronics products. We have received reports of battery malfunctions in some of the L6 products we released. We sincerely apologize for the inconvenience and concern this has caused.”
The reporters quickly transcribed Jo Dong-jun’s words into articles and sent them out.
Jo Dong-jun continued his address, facing dozens of cameras and over a hundred reporters.
“After conducting internal investigations, it has been confirmed that there were issues with the battery cells themselves. While only a small portion of the products with the problematic batteries are estimated to be in the tens of thousands, prioritizing consumer safety, we have decided to temporarily halt sales and exchange all L6 units sold so far with new products. It is expected to take a week to prepare the replacements. We plan to expedite the exchange process as much as possible and will inspect and take necessary actions for customers who visit service centers before the new products are ready.”
The unexpected announcement surprised the journalists who were writing their articles.
They eagerly raised their hands and began asking questions.
“Are you planning to recall the products rather than just replacing the batteries?”
“That’s correct.”
“What was the issue with the battery cells?”
“Due to minor deviations in the manufacturing process of the battery cells supplied by Seosung SB, there was a compression error on the upper right side, causing damage to the separator and leading to contact between the cathode and anode, resulting in the malfunctions.”
“What are the differences between the new and old products?”
As questions poured in, Jo Dong-jun calmly provided answers.
“Due to supply issues, the initial batch in the first launch countries had Seosung SB batteries, while the subsequent launches were intended to feature BTL batteries. We will postpone the launch in the later countries and recall all current production units for replacement. We expect the recalls to proceed sequentially starting in a week.”
“Since the recall is due to the manufacturer’s responsibility, how do you plan to address consumer inconvenience?”
“We are currently discussing this matter with mobile carriers to ensure that sufficient compensation is provided.”
“About how much do you expect the loss cost due to the recall to be?”
President Jo Dong-jun said with a pained expression, “It is a considerable amount, to the point of being distressing. However, prioritizing consumer safety, we have made this decision.”
—
Watching the news, Taek-gyu dropped the chicken he was eating.
“It’s not a discontinuation but a recall? What will happen now?”
I, too, was equally shocked.
I was at a loss for words in my confusion.
“······.”
This is totally insane.
– Do they replace the whole product with a new one, not just the battery?
– Will they just replace it without questioning?
– Even if the screen is shattered, they will replace it if you bring in only the main unit.
– I might as well keep using it until then.
– Seosung Electronics is really generous.
– Their after-sales policy is in a league of its own.
– nPhones don’t even explode, what’s all this talk about?
The online posts generally welcomed Seosung Electronics’ recall decision.
According to a survey conducted by a public opinion research agency, 95% of L6 users expressed their trust in Seosung Electronics and stated they would continue to use L6. Approximately 6 million units have been sold to date.
If all these products were exchanged for new ones, the nominal loss would be around 6 trillion won, based on sales revenue, but the manufacturing cost is estimated to be around 300,000 won.
Therefore, the actual loss would likely be around 2 trillion won.
It was forecasted that if the returned phones were sold as refurbished phones in emerging markets, the loss amount might not be significant.
Although there were losses in the range of billions, market evaluation indicated that since this is only a one-time loss, it is not something to be overly concerned about.
Instead, a report has come out saying that due to this recent incident, Seosung Electronics may actually gain consumers’ trust, which could benefit the company in the long run.
The stock price, which had been falling due to the recall announcement, rebounded at the last minute and only ended up dropping by 1.5%.
The next day,
Seosung Electronics announced a shareholder return policy, including quarterly dividends. The market cheered this announcement more than expected, leading to a 3.4% increase in the stock price.
***
His accounts were filled with red figures.
The losses from short selling exceeded 10%. That was a loss he could bear, but the situation with put options was different.
The losses from put options exceeded 30%, even reaching 80% in some cases.
Combined with the losses from short selling, the total loss was nearly half of the initial investment.
Taek-gyu stared at his account balance with a half-dazed expression.
Just a few days ago, he couldn’t have imagined ending up in such a situation when buying put options.
I widened my eyes as I checked the balance.
Out of the 13 billion won invested, 6 billion had vanished. Some of my money was gone, and Taek-gyu had lost tens of billions.
We had agreed to share profits, but Taek-gyu would have to bear most of the losses. I couldn’t cover tens of billions.
“…What should we do now?”
***
With eyes closed, lying down, but unable to sleep.
All that filled my mind was one thought.
Why a recall, not abdication? Did I misinterpret something?
Could I have missed something?
What should I do now…?
The number 6 billion flickered before my eyes.
“6 billion…”
I can’t grasp what amount that is.
It’s enough money to live without working for a lifetime. Even if I spend 1 billion every year from now on, will I be able to spend it all?
But that money was gone in just a few days.
Money untouched, only recorded as a negative balance in the account.
Warren Buffet, known as the genius of investments, said that there are only two principles to follow when investing.
First, don’t lose your capital.
Second, make sure to follow the first principle.
He faithfully kept those two principles, but other investors did not. That’s why he achieved great success, while others failed.
… It’s nonsense.
Who wants to lose their capital willingly? They invest thinking they will make money and end up losing it.
Regardless of possible or impossible, there is logic in those words.
If you incur a 50% loss of your capital, you need to make a 100% profit to recover it. Therefore, once you lose your capital, recovery is almost impossible.
But we’ve lost 6 billion from the start.
The bigger issue is that this may not be the end.
The value of options decreases over time. Options that can be exercised tend to converge toward the expected profit and option price, but options that cannot be exercised converge to zero no matter the purchase price.
If the options expire like this, additional losses of tens of billions will occur.
What should I do about this?
Should I withdraw now to avoid further losses?
If it ends like this, recovering the principal would be practically impossible.
I felt like fear was tightening around my neck.
