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US-China trade battle churns markets

Warrants Commentary (13 May to 17 May)

The Hong Kong market was closed last Monday (13 May) in conjunction with the Birthday of the Buddha holiday. Upon reopening, the Hang Seng Index (HSI) futures plunged 1.7% to 27,858 points as markets churned when China retaliated against the US by raising tariffs on USD60bil in US goods to 25%. Though the HSI futures then rebounded 0.8% in total over Wednesday and Thursday, the rally failed to take hold as the futures fell 1.3% on Friday to finish the week at 27,730 points, down 2.1% week-on-week (w-o-w). Warrants over the HSI took up a good 81.5% of turnover for the week, despite having a slightly shorter trading week.

The call warrant HSI-C5G saw 165.7mil units traded over last week. This warrant was close to being sold out in the previous week (as at 10 May), with only slightly above 1mil units remaining in the issuer’s inventory. On Wednesday and Thursday, as the HSI futures took a short breather, investors sold back  16.8mil units in total, but proceeded to buy this warrant back on Friday, resulting in this warrant being fully sold out. Investors should exercise caution when trading sold out warrants as the warrant price may be inflated by other investors trading the warrant. It is important to refer to the live matrix, where available, to determine the warrant’s fair price.

Meanwhile, the second most popular warrant for the week was the put warrant over HSI, HSI-H6G, which saw 126.5mil units changing hands despite expiring very soon. Do note that this put warrant will expire on 30 May 2019, which means the last trading day will be on 28 May 2019, 2 market days before expiry. Warrants approaching expiry will experience the highest time decay, as a warrant generally loses two-thirds of its time value in the last one-third of its life.  

In the local scene, call warrants over My E.G. Services (MYEG) were heavily traded, in particular MYEG-C58 and MYEG-C68, which have exercise prices of RM1.20 and RM1.85, respectively. MYEG shares closed at RM1.45 on Friday, 2.1% higher w-o-w. This makes MYEG-C58 an in-the-money (ITM) warrant and MYEG-C68 an out-of-the-money (OTM) warrant. Warrants that are OTM tend to have higher gearing levels than ITM warrants, which translates to a higher level of risk.

Top warrants by volume traded:

Warrant nameVolume
(mil. units)
IssuerExercise level / priceExpiry date
HSI-C5G165.7Macquarie29,40027 Jun 2019
HSI-C6G126.5Macquarie28,80030 May 2019
HSI-C5D62.1Macquarie30,00030 May 2019
MYEG-C5860.9Kenanga1.202 Aug 2019
MYEG-C6848.4Macquarie1.8531 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.