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Turbulent week for the HSI futures as tariffs loomed

Warrants Commentary (6 May to 10 May)

It was a volatile week for the Hang Seng Index (HSI) futures as markets tried to price in the US’ imposition of higher tariffs on US$200bil. of Chinese imports.  The HSI futures plunged 3.0% on Monday, its worst decline since 23 October 2018. After a small rebound on Tuesday, the futures continued on its descend with a 1.1% and 2.7% decline on Wednesday and Thursday, respectively.  On Friday, after the tariff hike on $200bil. worth of Chinese goods to 25% has been confirmed, the HSI futures took a plunge to below the 28,000 level, before rebounding to close at 28,327, representing a week-on-week (w-o-w) decline of 5.1%.

The top warrant for the week was put warrant HSI-H6G with more than RM80.6mil. changing hands.  Despite being very short-dated (expiring on 30 May 2019), the warrant gained as much as 79.0% on Monday, rising from RM0.095 to RM0.170.  W-o-w, the warrant was up a whopping 126.3% to RM0.215. Though the price gains of certain warrants may be very attractive, it is important to also look at the expiry dates, as in this case, HSI-H6G would stop trading on 28 May 2019.  Warrants approaching expiry will experience the highest time decay. With that, Macquarie has widened the offer price of all HSI warrants expiring in May  to prevent further buying in near-to-expiry warrants.  Existing investors need not to worry as the bid price of these warrants will continue to track the underlying correctly.  

On the flip side, call warrant HSI-C5G was the most active call warrant last week as investors were looking for bargain buys with the drop in price.  The warrant fell in-line with the HSI futures, ending the week 59.5% lower w-o-w to RM0.235.

When trading warrants over the HSI, it is very important to not get caught up with the trading volume of such warrants.  Some of these warrants were seeing 60mil. units traded in a day, which may give the impression that it is the best or most attractive warrant.  However, when trading structured warrants, it is always more important to refer to the warrant’s liquidity, i.e. the liquidity available on the warrant’s bid and offer price, as well as the bid and offer price spread.  Referring to the Live Matrix  of each warrant is an important first step to take before trading any warrants.

Top warrants by volume traded:

Warrant nameVolume
(mil. units)
IssuerExercise levelExpiry date
HSI-C6G316.2Macquarie28,80030 May 2019
HSI-C5G305.5Macquarie29,40027 Jun 2019
HSI-C5D116.2Macquarie30,00030 May 2019
HSI-C5S100.8Macquarie31,80030 Oct 2019
HSI-H6W80.3CIMB28,20031 Oct 2019

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Provided for Malaysian residents information only. It is not an offer or recommendation to trade and is not research material. Past performance is not indicative of future performance. You should make your own assessment and seek professional advice.