Why should I invest in US Stock Warrants?
Hong Kong stock warrants and US stock warrants shares similar attributes, which means they also share similar advantages.
I. Gearing Effect
Investors can get the same exposure by investing smaller amount of capital to warrants compared to investing in the underlying itself. However, potential loss will also be magnified if the position is opposite to the underlying performance.
II. Portfolio Flexibility
For investors who have relatively smaller amount of capital, one may only be able to purchase a few units of US stocks when they have a high market price. Investing in warrants with gearing allows one to spare capital for other investment opportunities. For example, investing in warrants with an effective gearing of 5 times will require only one-fifth of the original capital needed for the same exposure as investing in the US stock itself, leaving the rest of the capital available for use.
III. Limited Loss
The maximum capital loss for investing in US stock warrants is the premium paid initially for buying the warrants. If a US stock call warrant has a 10 times effective gearing, a 20% drop in the underlying stock will result in a maximum loss of 100% of your original premium paid instead of 10 x 20% = 200%.
IV. Directional View on Underlyings
US stock put warrants provide investors an investment choice for investors believing the US stock will fall (taking a ‘short’ view on US stocks). For investors that holds US stocks, the put warrants also provide them an opportunity to hedge short-term fluctuations. For more information, visit the article "How to hedge your long position risk of a US stock with a US stock put warrant?"
V. Bridging the Time Zone Difference
The US Stock market opens at nighttime till midnight in Hong Kong. Hong Kong investors may find it difficult to stay up during this period of time. US Stock warrants are offered as a good alternative for investors to get US stock exposure during Hong Kong trading hours, overcoming the inconvenience due to timezone difference.
VI. Flexibility in Various Trading Currencies
US stock warrants are denominated in either HKD or USD. For HKD denominated US stock warrants, they allow investors to trade them using Hong Kong securities account with Hong Kong dollar. No additional US securities account and no exchanging currency needed. For USD denominated warrants, they are denominated, traded and settled in USD with the securities account. For more information, visit the article "How can you trade USD-denominated Warrants?"
VII. Trading on Post-Company Earnings Result
US Stock usually announces their earnings result during After-hour sessions. Sometimes the stock will experience high price volatility after the announcement. Since US stock warrants are traded during Hong Kong hours, they provide investors with opportunities to position themselves before the following US regular trading session. To know more, visit ‘How to trade post-company result with a US stock warrant before the opening of US stock market?’
VIII. Low Entrance Barrier
Compared to US stock options, US stock warrants requirement much less capital to trade. For example, before the stock split of Nvidia, one option contract of NVDA ATM call with 3 months till expiry may have a price of about 100 USD. Trading the option will require $100 x 100 unit x 7.8 = 78,000 HKD approximately. Trading with one board lot of NVDA call warrants will not require this much capital.
