The three major U.S. indices are diverging: the Nasdaq is oversold—should you choose warrants or bull/bear certificates?

The latest movements of the three major U.S. indices have started to diverge.

Dow Jones Industrial Average $Dow Jones Industrial Average (.DJI.US)$ closed at 52,210 points, still holding within its medium-term upward channel; the S&P 500 $S&P 500 Index (.SPX.US)$ closed at 7,413 points is near the lower Bollinger Band; the Nasdaq-100 $NASDAQ 100 Index (.NDX.US)$ has dropped to 28,039 points, with its short-term RSI entering oversold territory, indicating notably heavier selling pressure on tech stocks.

However, for those using Hong Kong-listed products to gain exposure to U.S. equity indices, simply predicting the direction of price movement is not enough. What stands out most in this product list are the three indices'knock-out distances for bull and bear warrants, how deep in- or out-of-the-money the warrants are, and the significant differences in sensitivity across various products.。

Dow Jones: Most stable in terms of price movement, but risks for at-the-money bear warrants are starting to rise.

The Dow has recently pulled back from its recent highs 53,289 pointsand found support near the 51,700 level, most recently rebounding to 52,210 points. Key levels to watch in the near term include:

– Support: 51,700, 51,000

– Resistance: 52,600, 53,300

In terms of products, the Dow offers:

For those bullish on a continued short-term rebound in the Dow, there is an ample selection of bull warrants, though their terms vary widely.

The closest bull warrant has a knock-out price around 50,000 points, less than 4% below the current level. These products offer leverage of up to approximately 16x and react quickly to intraday gains, but if the Dow Jones falls back below 51,000, the risk of knock-out will increase rapidly.

If the holding period extends beyond just one or two trading days, bull certificates with call prices around 48,000 to 49,000 pointsare more balanced. They offer slightly lower leverage but reduce the risk of being called away due to normal market volatility.

Regarding call warrants, all available market products are currently out-of-the-money, with the lowest strike price at 55,000 points—approximately 5.9% above the current level. Although effective gearing can reach up to 30x, their delta generally ranges only between 16% and 24%, indicating that some high-gearing products may not track the underlying index closely.

On the bearish side, recent DJIA bear certificates have call prices starting from 54,000 points, about 3.8% above the current level. These near-the-money bear certificates are highly sensitive, but given that the Dow’s overall trend has not clearly turned bearish yet, bear warrant positions could face significant pressure if the index retests the 53,000-point level.

In comparison, most DJIA put warrants have strike prices ranging from 41,000 to 48,000 points, placing them 7.6% to 21.1% out-of-the-money. These products are better suited for capturing pronounced corrections and may not be ideal for short-term trades expecting only a few hundred-point pullback.

Nasdaq-100: Technically oversold, but product selection shouldn’t rely solely on leverage

The Nasdaq-100 closed at 28,039 points, having dropped to the lower Bollinger Band at approximately 28,037 points, with a 9-day RSI of only about 27, entering short-term oversold territory.

Technically, observe the following levels first:

– Support: 27,800 and 27,000

– Resistance: 28,800 to 29,200 and 30,000

Among the three indices, Nasdaq-linked products are the most numerous:

For those bullish on a Nasdaq oversold rebound, bull certificates are the most direct instruments. However, note this issue first: the call-back prices of some bull certificates are already very close to 28,000, with some even showing near-zero buffer due to timing differences in reference prices.

Even though these products can offer leverage of 20x to 30x, they shouldn’t be bought merely because of low price or high leverage. It’s not uncommon for the Nasdaq to swing several hundred points within a single trading day, and at-the-money bull certificates could be called back before the index actually rebounds.

A more reasonable short-term rebound strategy would be to consider a group with call-back prices around 26,500 to 27,000, maintaining a buffer of approximately 4% to 6%. For a longer holding period, consider pushing the call-back level further out to around 25,000.

Among call warrants, the more at-the-money strike prices are at 28,800 to 29,000, about 2% to 3% out-of-the-money, with delta close to 47%. These call warrants track the index more closely than deeply out-of-the-money warrants with strikes above 30,000.

Conversely, products with strike prices between 32,000 and 35,800 points may have lower premiums, but their delta is less than 10%. If the upward move isn't sharp enough, the product price may not respond noticeably.

For those bearish on the Nasdaq, recent callable bear warrants have call prices around 30,000 points—about 7% away. This distance isn't excessively tight; if the index rebounds to around 29,000 points and faces resistance there, these bear warrants still offer some room for positioning.

Put warrants are available near-the-money or slightly in-the-money, with strike prices around 28,000 to 29,000 points and deltas of approximately 50%, making them more suitable than deep out-of-the-money puts for capturing short-term continued declines. However, their implied volatility ranges from about 27% to 45%. After a sharp tech sell-off, implied volatility may already be elevated; even if the directional view is correct, a drop in implied volatility could offset gains in the product.

S&P 500: Lower volatility makes at-the-money products more practically meaningful

The S&P 500 closed at 7,413 points, very close to the lower Bollinger Band at 7,393 points. The RSI has pulled back slightly in the short term but hasn't yet become as severely oversold as the Nasdaq.

Key levels to watch:

– Support: 7,380–7,400 points, 7,250 points

– Resistance: 7,490 points, 7,620 points

Relatively fewer S&P products available:

On the bullish side, bull certificates with a call price of 7,200 points are about 2.7% away from the current level, offering leverage of approximately 17x. These products are better suited for intraday or very short-term trading and may not be ideal for holding overnight due to external event risk.

A group with call prices between 6,900 and 7,000 points—roughly 5% to 7% from the current level—represents a more balanced choice.

Among S&P call warrants, in-the-money products with strike prices near 7,200 points have a hedge ratio (delta) of around 66% and effective gearing of approximately 11x to 12x. If the objective is to closely track a rebound in the index, these in-the-money warrants are generally more practical than deep out-of-the-money warrants with strike prices at 9,000 points.

On the bearish side, the nearest S&P bear certificates have call prices around 7,700 points—about 4.1% above the current level—with leverage potentially exceeding 30x. Given that the S&P typically exhibits lower daily volatility than the Nasdaq, near-the-money bear certificates offer more noticeable leverage appeal; however, if the S&P rebounds above 7,500 points, the risk of early call increases sharply.

How to choose among the three indices?

If comparing product structures alone:

– Dow Jones Industrial Average: Offers a wide selection of bull certificates, making it more suitable for capturing trends with moderate call distances.

– Nasdaq 100: Currently oversold in the short term but has the highest volatility; priority should be given to managing call distances of bull/bear certificates and implied volatility of warrants.

– S&P 500: Relatively moderate volatility; in-the-money call warrants and mid-distance bull certificates provide more practical tracking performance.

Currently, the Nasdaq is the market most likely to attract investors betting on a rebound, but it’s also the easiest to suffer from 'being right on direction but seeing underperformance from the chosen product'—typically due to selecting overly aggressive bull certificates or deeply out-of-the-money call warrants.

158K Views