Additional Risks Involved in Trading Derivative Warrants. 8.1 Time decay risk All things being equal, the value of a derivative warrant will decay over time as it approaches its expiry date. Derivative warrants should therefore not be viewed as long term investments.
Additional Risks Involved in Trading Derivative Warrants. All things being equal, the value of a derivative warrant will decay over time as it approaches its expiry date. Derivative warrants should therefore not be viewed as long term investments. Prices of derivative warrants can increase or decrease in line with the implied volatility of underlying asset price. You should be aware of the underlying asset volatility. You should be aware of the intraday “knockout” or mandatory call feature of trading CBBCs. A CBBC will cease trading when the underlying asset value equals the mandatory call price/level as stated in the listing documents. You will only be entitled to the residual value of the terminated CBBC as calculated by the product issuer in accordance with the listing documents. You should also note that the residual value can be zero. The issue price of a CBBC includes funding costs. Funding costs are gradually reduced over time as the CBBC moves towards expiry. The longer the duration of the CBBC, the higher the total funding costs. In the event that a CBBC is called, you will lose the funding costs for the entire lifespan of the CBBC. The formula for calculating the funding costs are stated in the listing documents. You are exposed to price movements in the underlying security and the stock market, the impact of dividends and corporate actions and counterparty risks. You must also be prepared to accept the risk of receiving the underlying shares or a payment less than your original investment. You may lose part or all of your investment if the price of the underlying security moves against your investment view. You should note that any dividend payment on the underlying security may affect its price and the payback of the XXX at expiry due to ex-dividend pricing. Investors should also note that issuers may make adjustments to the XXX due to corporate actions on the underlying security. While most XXX offer a yield that is potentially higher than the interest on fixed deposits and traditional bonds, the return on investment is limited to the potential yield of the XXX. You should consult their brokers on fees and charges related to the purchase and sale of XXX and payment/delivery at expiry. The potential yields disseminated by HKEx have not taken fees and charges into consideration. Client assets received or held by the licensed or registered person outside Hong Kong are subject to the applicable laws and regulations of the relevant overseas jurisdiction which may be different from the Securities and Futur...
Additional Risks Involved in Trading Derivative Warrants. All things being equal, the value of a derivative warrant will decay over time as it approaches its expiry date. Derivative warrants should therefore not be viewed as long term investments. Prices of derivative warrants can increase or decrease in line with the implied volatility of underlying asset price. You should be aware of the underlying asset volatility.
Additional Risks Involved in Trading Derivative Warrants. Prices of derivative warrants can increase or decrease in line with the implied volatility of underlying asset price. You should be aware of the underlying asset volatility. All things being equal, the value of a derivative warrant will decay over time as it approaches its expiry date. Derivative warrants should therefore not be viewed as long term investments. • SOME ADDITIONAL RISKS INVOLVED IN TRADING CALLABLE BULL/BEAR CONTRACTS (CBBCS) CBBCs are not suitable for all types of investors. When the underlying asset is trading close to the call price, the price of a CBBC may be more volatile with wider spreads and uncertain liquidity. CBBC may be called at any time and trading will terminate as a result. You should be aware of the intraday “knockout” or mandatory call feature. A CBBC will be called by the issuer and ceased trading when the underlying asset value equals the mandatory call price/level as stated in the listing documents. Even though the underlying asset may be bounce back in the right direction, the CBBC which has been called will not be revived. You will only be entitled to the residual value of the terminated CBBC as calculated by the product issuer in accordance with the listing documents. You should also note that the residual value can be zero. Payoff for Category N CBBC will be zero when they expire early. The holder of Category R CBBC may receive a small amount of residual value payment when they expire early, but there may be no residual value payment in adverse issuers. In general, the larger the buffer between the call price and the spot price of the underlying asset, the lower the probability of the CBBC being called and the lower the leverage effect will be. The issue price of a CBBC includes funding costs. Funding costs are gradually reduced over time as the CBBC moves towards expiry. In the event that a CBBC is called, you will lose the funding cost for the entire lifespan of the CBBC. Although the price of a CBBC tends to follow closely the price of its underlying asset, but in some situations it may not. The trade inputted may still be executed and confirmed by you after the mandatory call event since there may be some time lapse between the mandatory call event time and suspension of the CBBC trading. Any trades executed after the mandatory call event will not be recognized and will be cancelled. Therefore, you should be aware of the risk and ought to apply special caution when the CBBC is trading close to the call price. • S...
