How to compare between the US CBBCs and US Warrants?

take directional positions. For bullish investors, they can choose callable bull contracts or call warrants. Bearish investors on the other hand can choose callable bear contracts or put warrants.

Why these products?

- Capital required for purchasing CBBCs and warrants are much lower than that of purchasing a futures contract.

- The maximum loss is the initial amount invested to the products. There is no risk of a margin call.

- US CBBCs and warrants are settled in Hong Kong dollars. Therefore, investors do not have to exchange currencies.

CBBCs or Warrants?

To choose between CBBCs and warrants, investors are to understand their features to decide which better suits their needs and the market conditions. CBBCs usually has a delta close to 1, offering the closing performance tracking of the US index. Moreover, time decay and implied volatility are not the major factors affect the value of the CBBCs, making it relative easier for investors to understand.

The closer the spot price of the index is to the call price of the CBBC, the higher the effective gearing. Compared to slightly out-the-money warrants that has a medium-to-short-term to expiry, some close to knock-out CBBCs may provide a higher gearing. CBBC's knock-out feature allows investors to use the call price as the stop loss of their investment. Investors do not have to margin call even when the index spot level exceeds the call price, with only a maximum loss of the initial invested capital.

When the market moves at a tight range, the gearing effect of CBBC can magnify the underlying performance without bearing the risk of implied volatility change and time decay if investors hold for a longer period.