Recently, Tencent has been rising and setting new highs repeatedly. Do you have the impulse to buy some Tencent cattle card? Don't worry, after reading this article, make sure you know the necessary risks before it's too late.

What is a CBBC?

CBBC is a kind of financial derivative instrument of options. If you first know CBBC, you can master its two attributes.

First, since it is a derivative, like warrants and options, the most obvious feature is leverage, high risk and high return. Second, the biggest difference between CBBCs and nest wheels and options is that CBBCs have a compulsory recovery mechanism. once the relevant asset prices tracked reach the agreed recovery price, the relevant CBBCs will be stopped from trading and forcibly withdrawn!

Let's further understand through a specific example. Enter the code "61195" on the Futu app or pc client and you can see the certificate of "Tencent Faxing one or two cattle B.C".

We can first take a look at the market of this bull, we can see that it has recently followed Tencent's rise, rising sharply, reaching 208% in June, while Tencent's increase in this range is 18%, you can see the obvious leverage effect.

Next, let's take a look at the name of the cow certificate. Don't be frightened by the name that looks like the "Book of Heaven". The naming is regular and can be seen at a glance. "Tencent" is the related asset, which can be a stock or an index; "Faxing" is the issuer of derivatives, Societe Generale; "one and two" is the year of maturity, "one" represents 2021, "two" represents February, and the position of the month sometimes sees "An and B", representing November and December; the last "cow" represents a bull certificate. As for the letter "B", the issuer issues multiple cattle certificates at the same expiration time, which are distinguished by letters, and the last ".C" is also the symbol of the cow certificate.

The risk of CBBC

For the CBBC, the most important message is its "recovery price". You can see that the recovery price of the CBBC is HK $380, which means that once Tencent falls to HK $380 at some point, the CBBC immediately stops trading and is withdrawn by the issuer. The original expiration date, February 25, 2020, is no longer valid. It can be simply understood that once the line is touched, game over, compulsory withdrawal is the key to distinguish CBBCs from warrants.

Continue to take Tencent as an example, after the stock price rose sharply, there was a correction in the last two trading days, and the share price fell back to HK $485. as a result, you can see that many bull certificates whose recovery prices were less than HK $490 were withdrawn and trading was terminated on June 26th.

Some people may ask, after being withdrawn, is there really no slag left? To put it simply, CBBCs are divided into two categories. Category N (with no balance) CBBC will have no value when it is recovered, while Category R (with balance) CBBC may get some residual value or lose all its money after it is withdrawn. The formula for calculating the residual value of Class R CBBC is as follows:

For example, the recovery price of 60939 is 22350 and the exercise price is 22250. If the Hang Seng Index falls to 22350 on a certain trading day and the lowest value falls to 22300 on that day, then the residual value per share will be (22300-22250) / 10000 RMB 0.005, a loss of more than 95% compared with the current price of 0.18 yuan. If the Hang Seng Index falls below 22250 at the lowest level that day, then there will be no residual value. If there is a surplus value, the relevant settlement amount will be automatically transferred to the Central Clearing House about 3 settlement days after the valuation, and then automatically transferred to the securities account of the investor.

Therefore, when investing in CBBCs, do not take any chances. Once recovered, huge losses will occur immediately, even if there is surplus value, so generally speaking, you can choose CBBCs that are far away from the recovery price. In this way, the risk is smaller, but the leverage is also smaller, which depends on the risk preference of investors.

Whether a bull-bear certificate is in category R can be confirmed by its listing documents in the individual stock announcement. For example, 60939 of the above is Class R, and at present most CBBCs are Class R.

The advantages of CBBC over warrants

The disadvantages of CBBC are obvious, but its advantages must also be emphasized. In the factors that affect the price trend, compared with warrants, the pricing factor of CBBC is simpler, and there is no phenomenon that the extended volatility leads to the opposite of the stock price. For example, many investors may have the following "painful experience": they bought a certain stock because they were bullish, and then the stock really rose, but the price of the subscription wheel actually fell instead of rising. This is caused by the extended volatility, which can be found in the article.