Warrants and Callable Bull/Bear Contracts are becoming more and more popular in Hong Kong stock market. On October 19, 2011, Hong Kong stock market’s turnover was HK$57.4 billion, of which 41.4% or more specifically, HK$10.1 billion were warrants and HK$13.6 billion were Callable Bull/Bear Contracts. This made a fresh record in the ratio of derivatives’ turnover. Analysts say this reflects investors tend to bet in short term and do not want to commit long term investments amid global uncertainities. In fact,  a lot of them are on day trade basis, no overnight lest a manadatory call on CBBC the next trading day due to sudden events.

Whether you like to trade warrants and Callable Bull/Bear Contracts or not, these derivatives have great impacts on Hong Kong’s market trends. To big players, the 41% of the total market turnover represents great opportunities to make money. The small investors, reporters and many analysts have criticised, though unproved, that big players make big money on warrants and CBBCs by manipulating the Hang Seng Index at critical mements. Below are two examples:

On September 26, 2011, the Hang Seng Index suddenly plunged to 16,999.54 in late afternoon session, from the previous day’s 17,668.83, thereby triggered manadatory calls on the heavily outstanding Callable Bull Contracts callable at 17,000. The HSI then rose back and closed at 17,407, and continued to rise to 18,130 the next day.

On October 26, 2011, despite Wall Street’s 2% tumble, the HSI after opening 1.27% lower at 18,727, pared losses gradually and dramatically surged from 18,866 to 19,106 within 17 minutes – the final 10 minutes of the morning session and the first 7 minutes of the afternoon session, thereby triggered manadatory calls on the Callable Bear Contracts callable at 19,000 and 19,100. The index then retreated to 18,850 to 18,900 band nearly the whole afternoon, though it finally closed above 19,000. 

Hence, investors, brokers, analysts, especially day traders pay heavy attention to the distribution of outstanding Hang Seng Index’s CBBCs, because big players tend to make big money on heavily outstanding CBBCs when the time is ripe.

You can visit Credit Suisse HSI CBBCs outstanding chart at the following website: 

http://warrants-hk.credit-suisse.com/en/summary/summary_cbbc_delta_e.cgi