"he won the feast, but lost, he turned off the lights and ate noodles. "this is probably the most appropriate sentence to describe the best supporting role in the Hong Kong stock market-Wo Lun and CBBC. In these two Hong Kong stock markets, which are available in Hong Kong stocks but not in A shares, there are legends of overnight profiteering and tragedies that have lost all their money. The nest wheel is famous for its high leverage effect and its small and broad characteristics.

What is a nest wheel?

Wo Lun, named after the homonym of English warrants, is a kind of warrants. When you hold a Wo Lun, you have the right to buy / sell its corresponding stock at a specified price on a specified date. Wo Lun is usually priced and issued by investment banks.

Suppose the market price of Apple Inc is 100 yuan per bag. At this time, the seller proposed that the buyer could buy a voucher at a price of 10 yuan, and the two sides agreed that the buyer could buy Apple Inc at 120 yuan per bag one year later. If the buyer predicts that the price of Apple Inc will rise in the future and is willing to buy this voucher, and the price of Apple Inc is higher than 130 yuan a year later, the buyer can make a profit by buying Apple Inc at a price of 120 yuan. On the contrary, if the price of Apple Inc is less than 130 yuan, the buyer will not use this voucher and the seller will make a profit of 10 yuan.

The above Apple Inc's purchase voucher can be regarded as a kind of subscription round, which can be divided into two types: subscription and sale. In addition, after the Wo Lun is issued, it can buy, sell and circulate freely in the market, and investors trade vouchers according to the judgment of the future price of the Wo Lun.

Finally, it is emphasized that although Wanlun represents a right, it is a virtual right, because no matter whether it is a subscription certificate or a sell certificate, it is delivered not in kind but in cash on the expiration date, and most investors just regard it as a tool to win the price difference.

The following picture shows the main structure of Hong Kong Exchanges and Clearing's financial products, and Wo Wheel is the derivative warrants under the structured securities of the HKEx.

The naming method of the nest wheel

First, this paper introduces the general naming method of Xiawo wheel, taking "Tencent Moto 14 Buy A.C" (18693.HK) as an example:

1) the first two words are the name of the stock, and the name of the stock is Tencent, which means that this turbine tracks the trend of Tencent.

2) the two words are the abbreviation of Turbo issuing Investment Bank, and this wheel represents that the issuer is Turbo.

3) Fourteen represents the year and month of exercise of the wheel respectively. That is, this nest ship will exercise power in April 2021.

4) the last word is "C" or "P", "C" means "call ship", and "P" means "call ship".

5) the last letter A/B/C/D means that Morgan may have issued a round of exercise rights against Tencent at the same time, but the exercise conditions are different (such as exercise price), so ABCD is used to distinguish them.

The contents in parentheses: "@" indicates delivery in cash at maturity, "*" indicates delivery in kind (stock) at maturity, "E" indicates European type, if "X" indicates special or non-traditional nest wheel (see its terms for details), "C" indicates subscription certificate, and "P" indicates sell certificate.

To sum up: the name of this nest wheel means: class An issued by JPMorgan Chase & Co, a subscription nest wheel with Tencent as the target, due in April 2021 and delivered in cash.

11 commonly used nouns of Wo Lun

In addition to the name, Turbo will also disclose some basic information on the information bar, taking "Tencent Moto 14 Buy A.C" (18693.HK) as an example.

1. Exercise price

The exercise price is that the holder has the right to "buy" (subscription certificate) or "sell" (sell certificate) the relevant assets at the exercise price on the maturity date.

Generally speaking, in the market, according to the gap between the exercise price and the current price of related assets, the turbine is divided into three categories, namely, inside price, outside price and discount price. Take the subscription certificate as an example, when the exercise price is higher than the current price of the asset, it will be called "outside the price", and if lower than that, it will be called "within the price". The concept of a sell certificate is just the opposite.

2. Expiration date

There is a time limit for the rights of the holder of the ferry, and the expiry date is the date on which the holder exercises the rights of the warrants, and the holders of European turbines can settle cash with the issuer only on the expiry date. When the warrants expire, they will be delisted on the exchange and settled automatically.

3. The last trading day

The last trading day of the turbine is 4 trading days before the expiration date.

4. Hedging value

The number of shares of related assets that the issuer needs to buy / sell for each sale / purchase of a turbine. The hedging value of "Tencent Moto 14 Buy A.C" is 0.62, that is, every time the issuer sells a subscription certificate, the issuer needs to buy 0.62 Tencent shares in the market as a hedge.

The hedging value of the turbine will change with the relevant asset prices, so the warrant price will rise or fall more or less than the theoretical price. The hedging value of subscription and sell warrants is between 0 and 1, and the hedging value of warrants is closer to 0.

5. Leverage ratio

The leverage ratio shows the multiple ratio of the warrants to the prices of the underlying assets in actual figures.

6. Effective leverage ratio

The effective leverage ratio represents the theoretical change in turbine prices for every 1% change in the price of the underlying asset. Tencent Moto 14 buys A.C 's effective leverage is 6.11, that is, Tencent's share price changes by 1%, and the turbine will theoretically change by about 6.11%.

7. Stock swap ratio

How many warrants are required for turbine holders before they can be exchanged for one of the relevant assets. For example, Tencent Morgan 14 buys A.C with a stock exchange ratio of 100 to 1, that is, the investor holds 100 shares of the option, and the settlement price is exchanged for the right of Tencent shares when the stock certificate expires.

8. Street-to-street ratio

Street volume represents the number of turbines held by market investors (except issuers). The proportion of street goods = street goods / circulation.

The higher this value is, the higher the degree of market participation is, on the contrary, the degree of market participation is low. The level of market participation is very important to investors. Buying a nest wheel with low market participation and small trading volume may face liquidity risk.

9. Premium

The higher the premium rate, the greater the difference between the current price of the turbine you buy and the current price of the underlying stock, which means that your turbine is expensive. On the contrary, the smaller the premium rate, the smaller the difference between the current price of the turbine you buy and the current price of the underlying stock, that is, the cheaper assets, the more likely to make a profit.

10. Extended amplitude

The extended volatility of warrants calculated according to the announcement of option pricing. The extended volatility can be regarded as the market's expectation of the future volatility of the relevant asset prices. simply understand: the greater the extended volatility, the greater the volatility of the stock price in the future, the higher the risk.

11. Hit and draw

Hit-and-hit refers to the price to which the relevant asset price needs to rise / fall when the investor buys the turbine and holds it to the maturity date.

Turbine chooses five steps

• The first step is to determine the appropriate exercise price after establishing the views on the relevant shares.

When choosing turbines, investors should conform to the expected trend of the prices of the relevant assets and choose the appropriate turbines. In terms of the price changes of the relevant assets, they can be divided into two categories:

Small rise or fall: when the price of the relevant asset rises or falls less, the extended volatility of the over-the-counter option is under adjustment pressure, and the out-of-price turbine loses time or eats away all the theoretical increases when the price of the relevant asset does not change much. The difference between the current price and the exercise price of the stock is called the value condition. The difference between the price of the relevant assets and the exercise price is called the value state. According to the value of the turbine, investors can choose to discount the price of the turbine.

When the rising or falling range is large: when the relevant asset prices rise or fall by a large extent, investors can choose a turbine with higher actual leverage, which can obtain a higher return, and its explosive power can also offset the loss of time value. especially when the stock certificate changes from outside the price to the inside price. However, when investors buy out-of-price turbines, the exercise price should also be limited to the target price of the relevant assets. If investors buy too many out-of-price turbines, the hedging value of the wheel will be lower, which means that the price of the wheel may not be sensitive enough to the underlying stocks, thus reducing the ability to track the trend of the underlying stocks.

Schematic diagram of turbine exercise price selection under different price changes of related assets:

• The second step is to choose the appropriate expiration date.

After choosing the appropriate exercise price, investors have to choose the turbine with the right maturity.

The time value is closely related to the expiration date of the ferry. In theory, the shorter the maturity of the turbine, the less the remaining time value, the cheaper the face value, the higher the leverage ratio, and investors will get more return if they judge the trend of the relevant assets correctly.

However, the shorter the maturity of the turbine, the higher the loss of its daily time value, especially the "doomsday wheel" whose maturity is less than one month or is about to expire, the loss is the most obvious and will decrease at a non-linear acceleration, so it is difficult for investors to hold it for too long. If you misjudge the trend of the related assets, the loss will be greater.

Therefore, investors should choose the appropriate combination of exercise price and maturity date according to their risk tolerance. Credit Suisse connects the value status of warrants with the maturity date, using 1-9 to indicate the degree of risk and return of warrants with different maturity and value status, with 1 being the highest and 9 being the lowest.

• Step 3: choose the one with lower volume in Turbo Street.

Street volume is the number of turbine certificates held by market investors (except issuers), which is sometimes expressed as a percentage. The higher the street volume ratio, the less the number of turbine certificates that the issuer holds that can be used to provide liquidity, which means that the lower the issuer's ability to maintain price stability, the easier it is for the supply and demand factors of the turbine to affect the wheel license price.

Many investors mistakenly think that ferries with higher street volume will have higher liquidity. In fact, on the contrary, the main liquidity providers of products come from issuers. For products with lower street volume, issuers are more enthusiastic in asking prices. The circulation of products is more secure.

Therefore, investors have an important step in screening turbines, that is, to exclude turbines with high street volume and choose turbines with lower street volume.

• Step 4: choose the one with lower extension amplitude.

Through the option pricing model, the extended volatility of the warrant can be inversely calculated by substituting the turbine price and other factors such as maturity date, exercise price and so on. The extended volatility can be regarded as the market's expectation of the future volatility of the underlying asset prices, and the change in this value is also related to the over-the-counter options market.

For turbines with similar terms, the lower the extended volatility means the cheaper the issuer's price, so investors should choose the turbine with lower extended volatility.

• Step 5: choose those with outstanding leverage ratio.

After screening with the above steps, investors can find and select the turbine with outstanding leverage ratio in order to achieve the maximum return on investment.

Nest wheel risk

Take Tencent as an example, the small price change of the underlying asset (stock index, etc.) can have a great impact on the round price (that is, royalty). Nest wheel can bring excess returns for investors, but it also carries high leverage, high volatility and high risk.

Assuming that some investors are bearish on Tencent, judge that its share price will fall below HK $400 in August, and buy and hold "Tencent Faxing eight sales B.P" (22445.HK) between 2020-3-18 and 2020-6-26, the result is that the round price of its trading has fallen by more than 90 per cent.

To sum upMost investors regard the nest wheel as an investment tool to win the price difference, which gives the investor the right to buy / sell its corresponding stock and index at a specified price on a specified date, but this is also a virtual right. because when the nest wheel expires, it is often delivered not in kind but in cash.

In addition, because the wheel carries high leverage and high risk, it can magnify both gains and losses, especially the transaction of the wheel itself contains more humanity and more games, investors need to be cautious.

Where exactly is Wo Lun going to buy?

As long as you pick up the phone and open the Futu Niuniu APP, you can get all kinds of parameter information of the wheel in real time and buy and sell the wheel in real time.

Users click [Market]-[Market]-[Hong Kong stocks]-[Wo Lun Niu Bear] on Futu Niuniu's App, and they can see all kinds of information and parameters of Wo Lun.

It is precisely because the wheel carries high leverage and high risk, it can magnify both gains and losses, especially the transaction of the wheel itself contains more humanity and more games, investors need to be cautious.