Leverage Play into Hang Seng Index Warrants on the Hang Seng Index are flexible instruments which give the investor the ability to take a bullish or bearish view on the market as a whole. They are also ideal vehicles for aggressive players of the Hang Seng Index since they offer a high degree of gearing. On 19 May 2000, the Hang Seng Index closes at 14,478. An investor has a bullish view on the index over the short term. Instead of buying the HSI futures on margin, the investor could buy call warrant 9904.HK on the HSI. Buy the Call Warrant on HSI and Sell 3 weeks later On 19 May 2000, while the HSI closed at 14,478, the call warrant 9904.HK closed at HKD 0.117. If the investor bought 100,000 warrants, the cash required would be HKD 11,700.00 (100,000 warrants x HKD 0.117). On 8 Jun 2000, the HSI rose 9.7% to close at 15,876. The call warrant on the same day closed at HKD 0.172 rising 47% from the original purchase price. Buy the HSI Call Warrant and Hold Until maturity Example: Call warrants on Hang Seng Index (stock code: 9904.HK) Terms and conditions as of launch date (16 Mar 2000) Maturity date 28 Sep 2000 Type European-style call warrants Underlying Hang Seng Index Strike price 14,800 Conversion ratio 12,000 warrants for 1 index unit If however the investor decided to hold the call warrants to maturity then the potential profit and loss would be like diagram 4. The break-even point for the call warrant would be at 16,204 HSI level (HKD 0.117 x 12,000 + strike price of 14,800). In other words, the Hang Seng Index must rise above this level before the position on the warrant makes money on the maturity date.