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HK Equity Derivatives Notes | Hang Seng Index rises into resistance zone; individual stocks no longer simply 'rising and chasing together'

Hang Seng Index closed yesterday at 24,681 points, up 1.4%. Looking solely at the index, market sentiment is indeed better than in the recent period, and the rebound from lower levels appears to be continuing. However, at this current level, we would actually start to slow down a bit and avoid becoming overly bullish on all bull certificates and call warrants just because the index has been rising consecutively.

The reason is simple: the Hang Seng Index has now reached the resistance zone around 24,775 to 24,857 points, and the short-term RSI has also risen to an overbought level. This doesn't necessarily mean the Hang Seng Index will definitely pull back, but it does mean that at this stage, selecting the right terms of structured products is more important than simply judging market direction.

Sometimes investors get the market direction right, but choose products with strike prices too close to the current level or call prices set too near. As a result, even a normal market fluctuation can trigger early termination of these products. This is precisely the key point we want to highlight today when reviewing warrants and CBBCs.

Hang Seng Index: Bull certificates can still be considered, but don’t chase those with the highest leverage only.

The first level to watch for the Hang Seng Index right now is 24,775 points, followed by the upper Bollinger Band at around 24,857 points. If the Hang Seng Index can stabilize above this zone, the rebound could extend further; however, if it starts consolidating near this level, it may test 24,450 points。

Among the products listed in the overview, representative Hang Seng bull certificates have a call price around 23,300 points, approximately 5.6%away from the current price, with leverage of about 16x.

For example:

– Guojun 54388, call price at 23,300 points, leverage 16.1x

– Xinzheng 55736, call price at 23,300 points, leverage 16.0x

The advantage of such terms is that they are not too close to the spot price. If the Hang Seng Index merely pulls back from 24,681 points to test 24,450 points, there is still a reasonable buffer. For investors who believe the index still has a chance to break above 24,857 points but don’t want to use products with very tight call prices, this level of distance from the call price is easier to manage.

However, it’s important to clarify: a 5.6% buffer does not mean safety. If the Hang Seng Index breaks below 24,450 points and retreats toward around 23,700 points, bull warrant prices will still come under significant pressure. Even if the warrant hasn’t been called yet, the original investment thesis would already have changed.

Therefore, when considering bull warrants at this stage, we should first ask ourselves: are we betting on a breakout, or on a pullback followed by another rise?

If it’s a breakout play, we need to see whether the index can firmly hold above the 24,775–24,857 point range; jumping in simply because the index rose 1.4% yesterday carries the risk of buying near short-term resistance.

Hang Seng bear warrants: having distance doesn’t mean you can turn bearish too early

For bear warrants, representative products have call prices around 26,000 points vicinity:

– UBS Group 53776, call price at 26,038 points, leverage of 17.6x

– HSBC 54766, call price at 26,028 points, leverage of 18.8x

Approximately 5.5% away from the current price, these products are not among the closest-to-the-money offerings in the market. Such products are more suitable if the Hang Seng Index shows clear resistance around the 24,800-point level, after which bearish positions could be considered.

However, we would not immediately conclude that the Hang Seng Index must fall solely because the RSI is elevated. In a strong market, an elevated RSI can persist for some time, and the index may continue advancing along the upper Bollinger Band.

Therefore, what truly matters when considering bear warrants is not simply that 'the index has risen significantly,' but whether the following signals have emerged:

– Repeated failures to break through the 24,775 to 24,857 point range

– Clear pullback from highs

– A break below the 24,450-point level

– Heavyweight stocks begin turning from strength to weakness

If these conditions have not materialized, deploying bear warrants too early may simply mean fighting against the short-term trend while waiting.

Tencent: The stock price is rising quickly, but the underlying products may not feel equally comfortable.

Tencent closed yesterday at HK$474, up 3.9%, which appears to be a very strong day on the surface. However, the share price is already approaching HK$483, the first resistance level nearby; the next target would be around HK$498 if it breaks higher.

At this level, warrant investors are most prone to one common mistake: seeing the underlying stock surge rapidly and immediately chasing the highest-leverage products, while overlooking that the price is already near resistance.

In terms of products, typical call warrants offer an effective gearing of roughly 4x to 5x, which isn’t particularly aggressive. The advantage of these products is their longer time to expiry and relatively straightforward moneyness (in-the-money or out-of-the-money status), making them suitable for investors who expect Tencent to break through resistance gradually rather than with a sharp spike over just one or two days.

As for bull certificates, their knock-out prices are around HK$420–428, approximately 10% below the current price, with gearing of about 8x. Compared to call warrants, they are slightly more sensitive, but investors should also note that if Tencent suddenly pulls back from its recent highs, the decline in bull certificates will be significantly steeper than that of the underlying stock.

Therefore, Tencent’s biggest issue right now isn’t whether bullish products are available—it’s whether you should chase the stock near resistance levels.

We would lean toward watching two things first:

1. Can the stock price break above HK$483?

2. If it breaks through, can it hold steady rather than retreat on the same day?

If the move is only a short-term spike followed by a pullback, buying near resistance levels could easily put you in a passive position.

HSBC: The uptrend is relatively stable, but bearish products are actually riskier.

HSBC closed at HK$155.30, with a relatively stable trend and a favorable short-term reward-to-risk ratio. Immediate upside target is around HK$158.40, followed by the HK$163 level; downside support lies at HK$152 and HK$147.5.

For bullish products, call warrants offer leverage of roughly 7x to 9x, while bull certificates can reach about 14x. If you only expect HSBC to gradually rise toward HK$158–HK$163, slightly out-of-the-money call warrants may be easier to manage.

For bull certificates, pay attention to the knock-in (call) price. The nearer batch has a knock-in price around HK$145, less than 7% below the current price, offering higher leverage; the more distant batch has a knock-in price around HK$133, with leverage of only about 7x.

The trade-off here is straightforward:

– If you want high sensitivity, you must accept a closer call price.

– If you want a larger buffer, you must accept lower leverage.

Bearish products actually warrant extra caution. Some HSBC bear certificates in the market offer very high leverage, but their call prices are near HK$159. HSBC’s first resistance level is already approaching HK$158.40—meaning that even a routine test of resistance by the underlying stock could push these bear certificates into the danger zone.

These products may appear attractive due to their high leverage, but the risk is also very direct. For bearish investors, the key consideration isn’t leverage—it’s whether the call price sits right near the underlying stock’s resistance level.

Meituan and Alibaba: Both trending upward, but with different warrant structures

Meituan offers better short-term risk-reward potential, with its share price closer to immediate resistance. Alibaba lacks Meituan’s momentum, but its warrant offerings are more diversified.

Meituan closed at HK$83.40, with first resistance around HK$85. For those bullish on a near-term breakout, slightly out-of-the-money call warrants will reflect movements in the underlying stock more readily than deeply out-of-the-money products. As for bull certificates, their call prices range from approximately HK$74 to HK$76—about 9% to 11% below the current price—making them manageable from a risk perspective.

Alibaba closed at HK$113.40, with initial upside targets at HK$115.70 and then HK$119. Most Alibaba call warrants are relatively far out-of-the-money, offering leverage of around 5x; thus, modest gains in the underlying stock may not immediately translate into strong warrant performance.

However, Alibaba’s bull certificates feature more comprehensive terms: some have call prices near HK$100 (offering a wider safety margin), while others sit near HK$104.80 (providing higher leverage). Investors can thus clearly choose between safety buffer and sensitivity.

Thus, if considering only the reward-to-risk ratio, Meituan appears more attractive; however, in terms of product terms, Alibaba's callable bull certificates offer more flexibility to accommodate varying risk appetites.

Innovent Bio: A high reward-to-risk ratio doesn't mean the product is cheap.

Innovent Bio currently shows a short-term reward-to-risk ratio exceeding 80 points, and its share price is approaching the resistance zone of HK$99–102, making its price action certainly worth watching.

However, the implied volatility (IV) of call warrants is generally above 60%, with some even nearing 70%. This indicates that the products are not cheaply priced, and even if the underlying stock rises, their performance could still be dampened by IV and premium.

As for bull certificates, their knock-out levels are relatively far away—more than 30% below the current price—leaving leverage at only around 2x to 3x. While this provides sufficient safety margin, the sensitivity may be insufficient for traders aiming to capture short-term breakouts.

This perfectly illustrates a common scenario in the derivative warrant market:

The underlying stock’s directional outlook may be very appealing, but the warrant terms might not be equally attractive.

Therefore, Innovent Bio isn’t off-limits—but investors must first accept one reality: call warrants are relatively expensive, while bull certificates lack sufficient sensitivity. Before taking any position, you must clearly understand which trade-off you’re accepting.

When analyzing derivative warrants today, we follow these three steps:

First, assess whether the underlying stock or index is currently near support or already approaching resistance.

Second, examine whether the product's recovery distance, moneyness, expiry date, and leverage align with this market level.

Third, only after that should you compare issuers and product codes—rather than starting by seeking the highest leverage.

Market sentiment is decent today, but the Hang Seng Index and some heavyweight stocks have already reached short-term resistance zones. At such times, while directional judgment is crucial, product terms must not be overlooked.

The product overview has compiled data on call warrants, put warrants, bull certificates, and bear certificates for the Hang Seng Index, the Hang Seng Tech Index, and several key stocks. Which stock or type of warrant terms are you paying most attention to today?

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