University of Hong KongTrading Workshop.ppt

Agenda Option Basics Equity-linked Notes Warrants Guarantee Notes Option Basics Call Put Options Option Basics Option Volatility (EquityOptionCalculator) -Rate of change in the underlying and the magnitude of these changes Historical Volatility Implied Volatility Simple Option Strategies Examples of option strategies Covered Call, Spread, Straddle, Strangle. Option Strategies using EquityOptionList.xls and EquityOptionStrategy.xls Equity Option List Model Equity-linked notes (ELN) ELN is a combination of a short or medium note with an option position Yield enhancement Note/deposit + short option(s) Bull ELN, Bear ELN, Strangle ELN Bull ELN is the most popular type, over 90% ELN trades are Bull ELN ELN Investor can choose a stock he/she is willing to acquire at a price lower than current market level =Put Strike Price Usually set at 5 to 10% below current price Then the investor can choose a maturity Fair Yield of an ELN How can we know whether an ELN is giving a fair yield? Or the participation rate is fair for a capital guarantee note? The answer lies on the price of the option: Are we getting fair price for selling option(s) or paying fair price for buying option(s)? Whether an option is fairly priced or not can be judged from the implied volatility of the option? Example of ELN Issuer: ABC Investment Underlying Stock: HSBC Holdings plc 0005.HK Underlying Price: HK$85 Put Strike Price: 90% of Spot, or $77.18 Trade Price: 99.05% Trade Date: 10-Oct-02 Settlement Date: 24-Oct-02 Valuation Date: 12-Nov-02 Maturity Date: 14-Nov-02 Denomination: HK$100,000 Shares per Note: 1296 ( subject to adjustment) ELN Calculator.xls ELN Calculator ELN Calculator Warrants in HK How to find the best warrants for your clients? Based on their requirements : - Top 5 turnover - Maturity Jun 2005 - Cheaper (Implied Volatlity) - Call Example of 0941.HK (China Mobile) - 0941W.HK (F3) Agenda HKEx traded warrants: Equity and Derivative warrants How