Hong Kong stocks are rebounding—what sectors deserve attention?

港股窩輪Jenny

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Both BYD and Xiaomi are showing relative strength, yet the complexity of their derivative products differs: one side looks for support, while the other prioritizes guarding against high volatility.

BYD $BYD COMPANY (01211.HK)$ and Xiaomi $XIAOMI-W (01810.HK)$ Recently, both stocks have exhibited relatively high reward-to-risk ratios and are now approaching short-term resistance levels.

Based purely on price action, both appear to follow a 'wait for breakout before targeting higher levels' approach.

However, once we examine the product terms, the difficulty levels are actually quite different:

– BYD warrants have an implied volatility of approximately 43%;

– Xiaomi warrants have an implied volatility ranging from approximately 48% to 51%;

– Xiaomi’s products carry higher time decay and volatility costs;

– The safety buffer (knock-out distance) for bull/bear certificates also differs between the two stocks.

Therefore, even with the same directional outlook, the product strategies should not be copied directly.

BYD: Support near HK$94; confirmation of breakout needed above HK$96.15

BYD is currently trading around HK$94.8, with support levels at HK$93.95 and HK$90.95, and resistance at HK$96.15 and HK$99.54.

The current price lies between the first support and first resistance. It is more suitable to wait either for a breakout above HK$96.15 or for a pullback to test support near HK$94 and stabilize.

BYD Guotai Junan 6Y Bull Call Warrant C (13049)

– Strike price: HK$99.8

– Effective leverage: approximately 5.7x

– Implied volatility: approximately 43.92%

The strike price is close to the second resistance level at HK$99.54. If BYD breaks above HK$96.15, the market will naturally begin testing the psychological HK$100 mark, making this call warrant’s strike price align well with the technical target.

However, an implied volatility of around 44% is not particularly low. If BYD only rises gradually, the warrant’s price gain may not fully reflect the underlying stock’s effective gearing.

This type of product is more suitable for investors who:

– Are waiting for the underlying stock to break above HK$96.15;

– Are targeting gains beyond just a few cents, aiming instead for HK$99 to HK$100;

– Prefer not to use callable bull certificates with a knockout mechanism.

BYD UBS Group 6Y Bull G (62387)

– Strike price: HK$84.6

– Knock-in price: HK$86

– Effective leverage: approximately 8.5x

The knock-in price is approximately 9.3% above the current price, representing a moderate safety margin.

BYD exhibits relatively high volatility, but the HK$86 knock-in price is already below the second support level at HK$90.95. Therefore, as long as the underlying stock maintains its current structure, normal pullbacks may not immediately trigger the knock-in price.

This product is more suitable for investors who are bullish on BYD's medium-to-short-term trend and seek more direct directional exposure than standard call warrants.

Bearish on BYD: The HK$101 bear warrant serves as a breakout-failure tool, not a speculative top-picking instrument.

BYD HSBC 8M Bear C (59203):

– Strike price: HK$102.5

– Knock-in price: HK$101

– Effective leverage: approximately 14.1x

The call price is above the psychological level of HK$100, about 6.5% away from the current price.

These bear warrants would only have solid technical confirmation if BYD shows clear resistance in the HK$96–100 range and then breaks below HK$93.95.

If the underlying stock directly breaks above HK$100, the distance to the call price of these bear warrants will narrow rapidly. Therefore, they are not suitable for holding against the trend solely because the share price has already risen.

On the put side, Citi BYD Jun 2024 Put A (27250) has a strike price of HK$84.95, an effective leverage of approximately 5.8x, and an implied volatility of around 43.38%.

This put warrant will only become more sensitive after BYD falls below HK$90, making it better suited for capturing larger-scale corrections rather than normal one- or two-day pullbacks.

Xiaomi: Resistance is closer, but product volatility costs are higher

Xiaomi is currently trading around HK$28.68, with support levels at HK$27.74 and HK$27.14, and resistance at HK$29.08 and HK$30.11.

Xiaomi is only about 1.4% away from its first resistance level, presenting both short-term breakout potential and downside risk.

Xiaomi CSCI Jul 2024 Call B (15725)

– Strike price: HK$30.88

– Effective leverage: approximately 4x

– Implied volatility: approximately 48.72%

The strike price is above the second resistance level of HK$30.11, making this an out-of-the-money call warrant.

The product’s leverage is not particularly high, partly due to its longer tenor and strike price level; however, the implied volatility of nearly 49% indicates that the product already embeds relatively high expected volatility.

If Xiaomi merely rises gradually from HK$29.08 to HK$29.50 after breaking through, the product’s performance may fall short of investor expectations. A more favorable scenario would be a rapid upward move in the underlying stock following the breakout.

HSBC Xiaomi Bull Certificate G (64130)

– Strike price: HK$25.60

– Knock-out price: HK$26.00

– Effective leverage: approximately 5.2x

The call price is about 9.3% away from the current price, below the second support level at HK$27.14.

This callable bull certificate offers relatively low leverage but a larger safety cushion. For a highly volatile stock like Xiaomi, a more distant call price may actually be more practical.

Another callable bull certificate with a call price of HK$27.5 has a leverage of approximately 7.1x, but it is less than 5% away from the current price. If Xiaomi retraces to around HK$27.5, the product will face a risk of being called back.

Therefore, when comparing Xiaomi bull certificates, one should not just look at the leverage of 5.2x versus 7.1x, but also ask:

Am I willing to accept losing my entire position due to a single normal pullback in Xiaomi's share price?

Xiaomi bear certificate: Called at HK$34, offering a wider safety margin

Xiaomi BNP Paribas Bear S (64327):

– Strike price: HK$34.4

– Call price: HK$34

– Effective leverage: Approximately 10x

The call price is about 18.5% below the current price, well above the second resistance level at HK$30.11. This bear warrant offers a relatively wide safety margin while still providing leverage of approximately 10x.

If investors believe Xiaomi cannot break through the HK$29–30 range, this type of product allows for an initial rebound in the underlying stock before waiting for a weakening trend to emerge.

On the put side, Xiaomi Huatai 60 Put B (27378):

– Strike price: HK$30.66;

– Effective leverage: approximately 5.8x;

– Implied volatility: approximately 47.83%.

The strike price is above the current market price, making it an in-the-money put with relatively direct directional sensitivity. However, its short time to expiry and high implied volatility may make it unsuitable for long-term holding.

Between BYD and Xiaomi, which underlying stock is easier to trade?

BYD

– Call implied volatility is around 43%, lower than Xiaomi’s;

– Clear technical target near HK$100;

– Bull warrant knock-out price at HK$86, below key support;

– Product terms are relatively straightforward to deploy based on technical levels.

Xiaomi

– Implied volatility (IV) for both calls and puts is around 50%;

– First resistance at HK$29.08 is very close;

– Under high volatility, warrant prices already reflect elevated expectations;

– If the bull warrant’s knock-out price is too close, it can easily be triggered by normal market fluctuations.

Therefore, although both stocks show relative strength, I would interpret it as follows:

– BYD is better suited for entering after a breakout above HK$96.15, then selecting products targeting near HK$100;

– Xiaomi is better approached by first managing implied volatility and knock-out distance—don’t chase maximum leverage solely because the stock price is nearing a breakout.

The Hang Seng Tech Index has not yet officially broken above 4,894 points; individual stock strength does not necessarily confirm the start of a new rally for the entire tech sector. Positioning in these two stocks should still align with broader index sentiment.

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