Some Additional Risks Involved in Trading Derivative Warrants. (i) 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.
Some Additional Risks Involved in Trading Derivative Warrants. Derivative warrants are an instrument that gives an investor the right, but not the obligation, to “buy” or “sell” an underlying asset at a pre-set price (also known as the exercise price) within a certain time period following a valid exercise. They may be bought and sold prior to expiry in the market. For derivative warrants traded in Hong Kong, they are usually settled at expiry in cash. In some markets, derivative warrants may be exercised at or prior to expiry by purchase or sale of the underlying asset. Derivative warrants may be issued in American or European styles. Holders of American-style derivative warrants may exercise at any time prior to expiry while holders of European-style derivative warrants may only exercise on the expiry date. Derivative warrants can be issued over a range of assets, including stocks, stock indices, currencies, commodities, or a basket of securities. They are issued by a third party, usually an investment bank, independent of the issuer of the underlying assets. Derivative warrants traded in Hong Kong normally have an initial life of six months to two years and when trading in the market each derivative warrant is likely to have a unique expirydate. Derivative warrant trading involves high risks and is not suitable for every investor. Investor should understand and consider the following risks before trading in derivative warrants.
Some Additional Risks Involved in Trading Derivative Warrants. 在交易所買賣的衍生產品所附帶的風險 衍生產品的一些相關風險
Some Additional Risks Involved in Trading Derivative Warrants. 衍生權證投資者有權在指定期間以預定價格「購入」或「出售」相關資產。衍生權證可於到期前在香港交易所現貨市場買入或賣出。到期時，衍生權證一般以現金做交收，而不涉及相關資產的實物買賣。衍生權證的相關資產 種類繁多，包括有股票、股票指數、貨幣、商品或一籃子的證券等等。發行衍生權證的機構是與相關資產的發行人沒有關系的獨立協力廠商，一般都是投資銀行。在香港買賣的衍生權證的有效期通常由六個月至兩年不等，而在香港掛牌的衍生權證均有其指定的到期日。 Derivative warrants are instruments that give investors the right to “buy” or “sell” an underlying asset at a pre-set price prior to or at a specified expiry date. They may be bought and sold before expiry in the stock market. At expiry, settlement is made in cash rather than delivery of the underlying asset. Derivative warrants can be issued over a range of assets, including stocks, stock indices, currencies, commodities and a basket of securities. They are issued by a third party, usually an investment bank, independent of the underlying asset issuer. Derivative warrants traded in Hong Kong normally have an initial life of six months to two years and each derivative warrant is likely to have a unique expiry date.
Some Additional Risks Involved in Trading Derivative Warrants. 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. Volatility risk Prices of derivative warrants can increase or decrease In line with the implied volatility of underlying asset price. The investor/client should be aware of the underlying asset volatility. Some Additional Risks involved in Trading CBBCs Mandatory call risk The investor/client trading CBBCs should be aware of their intraday “knockout” or mandatory call feature. A CBBC will cease trading when the underlying asset value equals the mandatory call price/level as stated in the listing documents. The investor/client will only be entitled to the residual value of the terminated CBBC as calculated by the product issuer in accordance with the listing documents. The investor/client should also note that the residual value can be zero. Funding costs 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, the investor/client 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.
