Hong Kong warrant investment skills

The term, extended volatility, premium rate and leverage are important reference indicators for warrant selection.

Special author Wan Ruhai/article

Among various derivatives of Hong Kong stocks, warrants are the most frequently used and contacted by mainland investors.

Different from the A-share market, the rise and fall of Hong Kong stock warrants basically depend on the performance of the underlying stocks. With the increasing inflow of mainland funds into warrants, the extended volatility and premium of Hong Kong stock warrants have increased, and the impact of supply and demand on the price of warrants has increased, but the basic logic has not changed. Judging the direction of underlying stocks is still the fundamental guarantee for the profit of trading warrants. Under this premise, option warrants still need some skills.

Warrant screening principle

Some investors simply pursue the actual leverage ratio, and think that choosing warrants with large leverage can maximize their judgment on positive shares, but this is not the case.

For example, buying a warrant with a leverage of 9 times is sometimes not as effective as buying a warrant with a leverage of 3 times. Because highly leveraged warrants are usually short-term out of price warrants, on the one hand, the time value of such warrants declines rapidly. Take the put warrants of Hang Seng Index as an example. For out of price warrants one month from the maturity date, the loss of time value may be as high as 10% per day; In the last few days before the expiration date, the time value will quickly return to zero, and the internal value has already been zero, which is the "doomsday round".

On the other hand, because some investors are not rational enough to chase the actual leverage ratio, the extended volatility and premium of this warrant may be relatively high. If you buy such a 9-fold put warrant, although the index has dropped by 2% as you wish, the warrant will not rise by 18% in theory at all, because the extended volatility will fall, the loss of time value should also be included, and more importantly, the expectation of rapid decline of time value should also be considered. The increase of the day may not be as good as a 3x warrant with very small loss of time value and low premium rate. Therefore, when choosing warrants, short-term out of price varieties should be avoided.

To select warrants, first of all, three other indicators must be met: first, the term is three months or less; Second, extended amplitude, the lower the better if other conditions are similar; Third, the premium rate. Take the Hang Seng Index warrant with sufficient variety supply as an example, only those below 5% can be selected. After that, consider the level of leverage.

Don't worry about liquidity

In terms of liquidity, in the case of short-term warrants, the issuer has no obligation to maintain liquidity, regardless of the in price and out of price, waiting for cash settlement when it matures. The liquidity of medium and forward warrants still depends on the issuer. Although there are also some varieties that can trade for tens of millions of yuan one day, this is also an institution hedging, and its counterparty is still the issuer, rather than other investors. Fundamentally, liquidity still depends on issuers. So when choosing warrants, there is no need to look at the transaction amount. Even if the transaction of a warrant is zero, as long as you think the terms are appropriate, you can still buy it.

The difference between issuers in providing liquidity lies in the difference of several prices between buying and selling. Of course, the best thing is that there is only one price difference, usually two or three price differences. There are also some stock certificates, which may differ by as much as 10 price points. On the one hand, the risk of hedging individual stocks is relatively high, and on the other hand, the strength of issuers is different. The three major issuers of Hong Kong stock warrants are Faxing (SG), Maiyin (MB) and Bi Lian (KC). Generally, these three issuers are more capable of maintaining the stability of extended volatility and providing liquidity. While most of the other dozens of issuers do not focus on issuing warrants, so they do not care much. For example, the strategy of the three major issuers is small profits but quick turnover. The purpose of providing high liquidity is to attract more buyers and more "street goods"; Other publishers are willing to take the bait. Therefore, investors generally choose the "three major" varieties.

In actual transactions, the purchase and sale orders of the issuer always go upstream and downstream with the fluctuation of the price of the positive shares. If you are optimistic about the positive shares, you can directly follow the sales order. If it is a listed order, you need to calculate the proportional relationship between the positive shares and the warrants, that is, judge how many prices the positive shares can fall, and determine the price of the listed order accordingly. It doesn't matter if the number of orders issued by a general issuer is 2 million (2M), but there are also as few as 100000 (100k). You just need to see clearly that this is the sales order of the issuer (Caihua Stock King Trading Software can provide the seat number and member name of the sales order in real time). Even if you buy it, you can buy 10 million copies, but it is only a matter of how many transactions.

Gangdeng Warrant Case

The reason why Hong Kong Diandeng (0006. HK) was chosen to illustrate the relationship between warrants and regular shares is that the stock of Hong Kong Diandeng is not small. Although it is a constituent stock of the Hang Seng Index, it has one of the smallest weights among the constituent stocks; Second, the fluctuation range of stock price is not large, and HEC is public utility Stocks, whether in terms of profits, dividends or share prices, are fairly stable (see Table 1); Third, Hong Kong Light has only one warrant, "7989", and can only buy it.

The Chinese name of "7989" is "UBS Hongdeng 802 Purchase", and the English name is“ UB-HKE@EC0802 ”, where UB represents UBS, which is the short name of the warrant issuer; HKE stands for Hong Kong Electric Light, indicating that the relevant assets are Hong Kong Electric Light stocks@ Represents cash settlement and * represents physical delivery; E stands for European style, no letter here stands for American style, X stands for non-standard type, and R stands for regional; C or no letter stands for subscription, and P stands for put; 0802 represents February 2008, which is the expiration date.

The basic terms of "7989" are: subscription; Exercise price of HK $38.88; It is due on February 11, 2008 and will be last traded on January 31.

The main indicators are: basically within the price; The actual leverage is 8-10 times; The proportion of street goods (the number of warrants held by public investors) is only about 1%, indicating that no one is speculating in this warrant by manipulating regular shares.

On December 21, 2007, Hong Kong Electric Light announced a 6% increase in the price of electricity. On the same day, another major power supplier in Hong Kong, China Power Holdings (0002. HK), announced a 4.5% increase in the price of electricity. The time when the "two electricity" announced the price of electricity in the new year is long known, and the market is generally expected to rise. Under the influence of this theme, there were two waves of upward trend in the positive shares of Hong Kong Light Industry.

Table 2 lists the ups and downs of HDL and "7989" in the last month. The following conclusions can be drawn from the data:

1. The change direction of both prices is completely consistent;

2. There are differences in the ratios, but they basically fluctuate around the proportion of actual leverage, so the warrants are very close to regular shares, and the extended volatility is quite stable;

3. The up and down difference of the ratio mainly depends on the expectation of the warrant investors on the positive shares. If the expectation is not good, the positive shares will rise by 1%, and the warrants may only rise by 4%. The ratio is small. vice versa.

Take the example of "7989", because its positive shares and warrants themselves are representative. In the last month, the highest and lowest share prices of Hong Kong Light were only 38.10-45.45 Hong Kong dollars, and the daily rise and fall were usually only 2%. The warrants gave full play to leverage, which can rise 65% or fall 26% a day. Whether investors start from basic analysis or just make trend investment, as long as they grasp the direction of positive shares, it is not difficult to make a profit of more than 10% a day. The charm of Hong Kong stock warrants can be seen from this.