#Learn Warrants and Bull/Bear Certificates with Jenny: Analyzing Actual Leverage and Product Selection Using Xiaomi as an Example

From a market news perspective, positive factors for Xiaomi have been accumulating recently. First, southbound funds are showing active inflows, with a single-day increase of 33,021,700 shares in Xiaomi Group on February 23, and a cumulative net increase of 75,381,000 shares over the past five trading days, reflecting mainland investors' confidence in its medium- to long-term prospects. Second, the company's buyback activities continue, spending another HKD 152 million to repurchase 4,282,400 shares on February 20. Since the start of the year, it has conducted 24 buybacks, with a cumulative amount reaching HKD 3.532 billion, representing a significant year-on-year increase of 1469%, fully demonstrating management's confidence in the stock price. Fundamentally, Huatai Securities’ recent research report pointed out that Xiaomi’s car deliveries exceeded expectations, potentially reaching 650,000 units by 2026. Additionally, R&D investments in AI and robotics are strengthening the company’s long-term technological barriers. These factors collectively provide support for the stock price.

#Learn Warrants and Callable Bull/Bear Contracts with Jenny#, this episode focuses on the difference between 'Leverage Ratio and Effective Leverage Ratio.' The leverage ratio refers to the multiple of the warrant price relative to the underlying stock price, calculated as 'Underlying Stock Price / (Warrant Price × Conversion Ratio),' reflecting the nominal capital input for the underlying stock versus the warrant. However, this is only a theoretical value and does not consider factors such as the time value and implied volatility of the warrant. The effective leverage ratio is based on the leverage ratio multiplied by the 'Delta,' showing the percentage change in the warrant price when the underlying stock price changes by 1%, providing a more accurate measure of the warrant's price sensitivity. For example, the recommended HSBC call warrant (24943) has both a leverage ratio and an effective leverage of approximately 8.5 times, meaning that if the underlying stock price increases by 1%, the theoretical warrant price will rise by about 8.5%. Investors should focus on the effective leverage when comparing products because it better reflects the potential return capability of the warrant.

Derivative products like warrants and callable bull/bear contracts offer the core advantage of allowing investors to establish positions equivalent to holding a certain amount of underlying stock with relatively less capital, thereby enhancing the potential efficiency of fund utilization. At the same time, investors can flexibly choose products with different terms based on their judgment of market direction, volatility, and time value, executing more refined trading strategies. For instance, using call warrants or bull contracts to capture rebound opportunities when short-term support levels are identified, or employing put warrants or bear contracts for hedging near resistance levels. The advantages of warrants and callable bull/bear contracts lie in their flexibility and leverage characteristics, enabling investors to capture potential returns from underlying stock movements while defining their maximum risk (the premium paid).