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Warrant & CBBS


Warrant
Warrant gives investor the right but not the obligation to buy or sell an underlying asset from/to the issuer at a pre-determined price (also known as the strike price), on or before a pre-determined expiry date, or to entitle cash settlement (if any) at maturity.

Call Warrant
If investor is optimistic towards the underlying, Call warrant with suitable terms can be considered. Investor's right is to buy the asset at a fixed strike price, on a pre-determined expiry date. 

Put Warrant
If investor is pessimistic towards the underlying, Put warrant with suitable terms can be considered. Investor’s right is to sell the asset at a fixed strike price, on a pre-determined expiry date. 

The name of a warrant is basically made up of different figures and English letters, and there are five pieces of basic information, take AB-CDEF@EC1101 as an example: 

AB ----- The issuer
CDEF ----- The underlying asset: CDEF Company
@ ----- Cash settlement on expiry date. *represents a spot settlement (but there is no warrant with spot settlement in the current market) 
E ----- A European style warrant, which can only be exercised on the expiry date; A represents an American style warrant (but there is no American style warrant in the current market); X represents a non-standard warrant 
C ----- Represents a Call warrant; P represents a Put warrant
1101 ----- Represents that the expiry date is January of 2011

The English letters at the end of the name means an issuer has issued more than one warrant with the same underlying asset and expiry year and month. The issuer then add the letters A, B, C, D, E, etc. to distinguish and avoid confusion. 

CBBC 
There are 2 types of CBBCs : Bull contract and Bear contract. The delta of CBBC is generally close to or equal to one. The bull contract represents optimistic and the Bear contract represents pessimistic on a particular underlying. CBBC regards stock, index, foreign currency or commodity as underlying assets. Suppose other factors remain constant, CBBC price moves according to the underlying assets. The investor can enjoy the gearing effect of changes in underlying price through a small amount of investment.

One great characteristic of CBBC is that apart from the strike price, it has a call price and a Mandatory Call Feature. If the underlying asset's price reaches the call price at any time prior to expiry, the CBBC will expire early and the trading of the CBBC will be terminated immediately.

CBBC is mainly divided into Category N and Category R. The strike price and call price of Category N are of the same level. When Category N CBBC is called before expiry, there will not be any residual value. For Category R, the strike price and the call price of Category R are different. When Category R is called before expiry, there is possible residual value upon the occurrence of an Mandatory Call Event ("MCE") but in the worst case, no residual value will be paid. The CBBCs in Hong Kong are mostly Category R. 

 

Disclaimer: Information contained in this message is not intended to provide professional advice or any of it constitutes a solicitation or an offer to buy or sell investment products. Evergrande Securities and Evergrande Futures will not represent or warrant such information is accurate, complete and up-to-date. Evergrande Securities and Evergrande Futures will not accept any liability in relation to the content of this message.

There will be risk in investment. Before investment, you must carefully consider if the investment products or services are suitable for you, in light of your investment objectives, experience and financial position. Price of investment products may move up or down and may become valueless. Losses would be incurred as a result of buying and selling investment products and you should accordingly be aware of all risks pertaining to investment. As such, you are strongly advised to seek independent professional advice whenever appropriate.

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