From 193 Hong Kong dollars to 26 Hong Kong dollars in just 34 days. This leveraged product, once hailed as a "tenfold miracle," has rapidly become a "wealth destroyer" for investors.
On July 29th, the trading floor in Hong Kong's Central district was thick with anxiety. CSOP 2x Short SK Hynix (07709.HK) opened over 8% lower, and during the session, it plunged by more than 29% to a price of 26.88 Hong Kong dollars. This represented a cumulative collapse of 81.96% since the beginning of July and a staggering retreat of over 86% from its late June peak. Less than a month earlier, on June 25th, this ETF had touched an all-time high of 193.65 Hong Kong dollars. In just 34 trading days, the price had fallen from the summit to the valley. The latest net asset value now stands at 319.2 billion Hong Kong dollars, having evaporated about 70% from its peak.
A "Record-Breaking Yet Disappointing" Earnings Report
On the morning of July 29th, SK Hynix released its second-quarter 2026 results: revenue of 79.32 trillion Korean won, up 257% year-on-year; operating profit of 60.54 trillion Korean won, a staggering 557% increase year-on-year, surpassing the total for the full year 2025; and net profit surged by 1242%. All three metrics hit fresh single-quarter records. However, the market was unimpressed – revenue fell short of the expected 84 trillion Korean won, and operating profit also missed the consensus estimate of 64.22 trillion Korean won. The simultaneous occurrence of "record-breaking" and "below expectations" was the final straw. During the overnight US trading session, memory chip stocks fell sharply – SK Hynix closed down nearly 9%, Micron Technology fell 8.85%, and SanDisk plummeted 14.25%. On July 29th, the South Korean stock market suffered another major setback. The KOSPI index triggered its ninth circuit breaker of the year during the session, marking the first time the index had triggered a circuit breaker on two consecutive trading days, causing a 20-minute trading halt. By the close, the KOSPI was down 5.99% at 5663.08 points, having fallen more than 12% at one point during the day. SK Hynix fell 9.6% after its earnings, hitting a record intraday decline of over 17%, while Samsung Electronics fell 5.2%. Adding to market anxiety, NVIDIA is reportedly advancing a total of over $750 billion in AI infrastructure-related partnerships, sparking concerns about "circular financing." The price of NVIDIA credit default swaps (CDS) posted their largest single-day increase on record.
The Truth About Leverage: The "Negative Compounding" Trap of Daily Reset
What exactly is the 07709 product? Its full name is the "CSOP SK Hynix Daily Leverage (2x) Product ETF." It was listed on the Hong Kong Stock Exchange on October 16, 2025, with an issue price of about 7.8 Hong Kong dollars. It uses swap contracts and other derivatives to synthetically track the daily price performance of SK Hynix shares on the Korea Exchange in Seoul. The meaning of "2x Long" is simple: for every 1% rise in SK Hynix stock, the ETF rises 2%; for every 1% fall, the ETF falls 2%. But hiding behind this is a trap easily overlooked – the daily reset mechanism. The "daily leverage" of a leveraged ETF means it settles every day and starts again from 100% the next day. This creates a "negative compounding" effect. Assume SK Hynix rises 10% on the first day, the ETF rises 20%; it falls 10% on the second day, the ETF falls 20%. Over two days, the underlying stock is down 1%, but the ETF is down 4%. In its product documentation, CSOP explicitly warns: "You may lose most or all of your investment in a single day." This product is designed for short-term trading or hedging and is not suitable for long-term investment.
The Story of the 150 Million Hong Kong Dollar Loss
Amid the collapse of the ETF price, a shocking case of a margin call emerged. On the evening of July 20th at 9:53 PM, a 36-year-old female director of a wealth management company in Hong Kong called the police. She reported a 26-year-old male trader from her own firm. According to media reports, the trader misappropriated 50 million Hong Kong dollars of company funds as margin, used institutional financing, and heavily purchased the CSOP 2x Short SK Hynix ETF (07709.HK). The period involved spanned from January 9th to July 20th of this year. From January to the end of June, SK Hynix was driven higher by the memory chip narrative, and 07709 soared to its historical high of 193.65 Hong Kong dollars. Then, the semiconductor sector experienced a sharp correction – by July 20th, the ETF had crashed to 52.58 Hong Kong dollars, a decline of over 72%. The 50 million Hong Kong dollar principal, amplified by the double leverage of margin financing and the 2x long ETF, ultimately resulted in a paper loss of 150 million Hong Kong dollars. The trader was arrested by police on the same day on suspicion of "theft." The position involved has not yet been forcibly liquidated, so the final loss will still fluctuate with the stock price.
But Bin and Expert Warnings: The Cruelty is Revealed When the Tide Goes Out
Facing this leveraged stampede, well-known investor Dan Bin (But Bin) has spoken out repeatedly. On July 29th, Dan Bin stated on social media: "You must be brave to buy during a big drop; I just fired the last of my bullets." But he also issued a stern risk warning: "The 2x Long SK Hynix ETF is currently down 25.72%. Leverage tools can amplify gains, but they also multiply risks. The cruelty of market fluctuations becomes clearer when the tide goes out. From this, it's clear that such leveraged products require extreme caution." Dan Bin believes SK Hynix has become one of the landmark companies of this AI cycle, and "based on the current pace of adjustment, the short-term direction will likely be decided soon." Hong Kong's Securities and Futures Commission (SFC) has recently also reminded investors about the risks of leveraged ETFs, using the CSOP 2x Long SK Hynix ETF as an example to warn retail investors about the double-edged sword nature of single-stock leveraged products. Some analysts have pointed out that the volatility of the CSOP 2x Short SK Hynix product is astonishing, perfectly reflecting the nature of single-stock leveraged and inverse products as a "double-edged sword" in financial markets – "they can enhance Hong Kong's financial competitiveness while simultaneously harboring risks. As seen recently with the crash-like decline in the Korean stock market, such products can cause retail investors to lose their life savings." Citigroup's latest calculations show that South Korean individual investors have recently generated total losses of about 387 billion US dollars (56.3 trillion Korean won) from leveraged ETFs. As of July 13th, forced liquidations in July alone had reached 344.2 billion Korean won (approximately 1.85 billion Hong Kong dollars), with over 1.2 million leveraged retail accounts hitting margin calls, of which about 320,000 to 360,000 accounts were fully liquidated.
Regulatory Crackdown: A Belated "Safety Valve"
On July 28th, the Chairman of South Korea's Financial Services Commission (FSC) stated that if the latest restrictions do not achieve the desired effect, South Korea is prepared to take further measures to curb investor demand for leveraged ETFs, including setting investment limits for individual investors. The Hong Kong SFC has also recently updated the regulatory framework for leveraged and inverse products. Analysts point out that the core of the new rules is a flexible leverage mechanism. It requires single-stock leveraged products, constrained by market liquidity and swap exposure, to adjust their leverage ratio daily within a 2x/-2x upper limit, accompanied by mandatory disclosure, renaming, and other constraints. CSOP announced on July 27th that its 2x leveraged and inverse products linked to NVIDIA, SK Hynix, Samsung, and Tesla will officially switch to a flexible leverage structure on August 3rd. In extreme market conditions, the leverage could be reduced to as low as 1.1x. This move has sparked significant controversy among investors. For those already deeply trapped, a lower leverage means the potential gains during a rebound will also be correspondingly reduced.
Leverage itself is not the original sin – it amplifies not just returns, but also human greed and fear. For regulators and product issuers, it is crucial to establish systematic warnings and risk expectations before a product is brought to market. Fortunately, this product is not included in the Stock Connect or mutual fund lists, meaning mainland Chinese investors cannot participate through these channels. For ordinary investors, before betting on such products, they should perhaps first ask themselves one question: Have they truly understood every single word in that product documentation?
Note: This article's data references Wind, trading software, and public reports. Funds carry risks; invest with caution.
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