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Hang Seng Index rebounds toward 26,000: How far out should bull certificates be placed, and should bear certificates be deployed urgently?

Hang Seng Index $Hang Seng Index (800000.HK)$ The rebound from the low of 22,518 to 25,858 has already exceeded 3,300 points.

From a technical perspective, upward momentum still exists, but the Hang Seng Index is entering a somewhat awkward position:

– First resistance level around 26,061;

– Short-term RSI around 77;

– Price is approaching the upper Bollinger Band;

– Yet, no clear bearish signal has emerged in the index.

Therefore, when positioning Hang Seng Index bull and bear certificates now, the real issue isn’t simply whether you’re 'bullish or bearish,' but rather:

If bullish, how much safety margin should you leave? If bearish, what signals should you wait for?

25,500 is the first line of short-term support.

The Hang Seng Index’s immediate support level is at 25,500, followed by 25,000.

The significance of 25,500 lies in the fact that it is the first pullback zone following the recent breakout. As long as the Hang Seng Index holds above 25,500, the overall rebound structure remains intact.

Only if it breaks below 25,500 will the market begin testing 25,000; and only if 25,000 is subsequently breached will the uptrend structure show clear signs of weakening.

On the upside, initial resistance is seen at 26,061, near the upper Bollinger Band, with the next resistance around 26,500.

With the current price at 25,858, it’s only about 200 points away from the first resistance level. Thus, when selecting bull certificates, one shouldn’t focus solely on the ongoing upward move but also consider whether the knock-out price can withstand normal volatility if a pullback occurs before reaching 26,000.

Bull warrant: Call price at 25,210 points—how close or far is that?

Both representative bull warrants have a call price of 25,210 points.

HSBC Hang Seng Index Bull Warrant 80 (67522)

– Strike price: 25,110 points

– Call price: 25,210 points

– Effective gearing: approximately 33.2x

CSC Financial Hang Seng Index Bull Warrant 8Y1 (67013)

– Strike price: 25,110 points

– Call price: 25,210 points

– Effective gearing: approximately 33.2x

Based on the Hang Seng Index (HSI) at 25,858 points, the distance to the call price is approximately 648 points, or about 2.5%.

On the surface, 648 points may seem substantial, but the HSI has recently seen intraday ranges exceeding 300 points. If market volatility increases, adjustments over just two trading days could quickly narrow this safety margin.

Who are these bull certificates suitable for?

– Confident that the HSI will hold above 25,500 points;

– Intending only short-term holding;

– Willing to accept the price volatility associated with high leverage;

– Prepared to actively exit if the HSI breaks below 25,500 points.

For investors planning to hold for several days or longer, a call price of 25,210 points is not particularly generous.

Even a normal pullback in the HSI to 25,000 points would already trigger the call of these bull certificates.

Why, even if bullish, might one not necessarily choose the bull certificate with the nearest call price?

Bull warrants typically involve a trade-off between leverage and knock-out distance:

– The closer the knock-out price, the higher the leverage;

– The farther the knock-out price, the lower the leverage;

– However, higher leverage does not necessarily mean a better risk-reward profile.

With the Hang Seng Index currently near resistance, buying a bull warrant with a knock-out price at 25,210 points effectively entails making two simultaneous judgments:

1. The Hang Seng Index will break above 26,000 points;

2. Before breaking out, the Hang Seng Index will not first retest below 25,500 points.

The second judgment is often more difficult than the first.

Therefore, for those bullish on the Hang Seng Index at this stage, product strategies can be divided as follows:

– Betting on an intraday or short-term breakout: use bull warrants with knock-out prices around 25,210 points;

– Bullish on the medium-to-short term but wish to avoid high knock-in risk: choose a more distant knock-in level;

– Breakout above 26,061 points not yet confirmed: call warrants can be used as an alternative to bull certificates for now.

Call warrants: no knock-in mechanism, but subject to time decay

For example, Hang Seng Index Citi 6A Call B (29701):

– Strike price: 27,000 points

– Effective gearing: approximately 13.3x

– Implied volatility: approximately 19.43%

The strike price is about 4.4% above the current spot level, making it an out-of-the-money call. If the Hang Seng Index breaks above 26,061 points and moves toward 26,500 or even 27,000 points, the product’s sensitivity will gradually increase.

An advantage of call warrants is that even if the Hang Seng Index briefly falls below 25,210 points, the product won’t be immediately knocked out like a bull certificate.

The cost is:

– Daily time decay;

– Implied volatility may decline;

– When the index trades sideways, these products gradually lose value.

Therefore, call warrants are better suited for investors who are bullish on direction but uncertain whether the market will pull back before breaking out.

Bear warrants: callable at 26,500 points, already very close to resistance

For bear warrants, you can compare two distances.

HSI Guojun 8A Bear J (59120)

– Strike price: 26,600 points

– Call price: 26,500 points

– Effective leverage: approximately 38x

The call price is about 642 points (approximately 2.5%) away from the current Hang Seng Index level, similar to the distance for bull warrants.

However, the issue is that the 26,500 level itself is also the second resistance. If the Hang Seng Index successfully breaks through 26,061, the market could test 26,500 directly.

Therefore, although this bear warrant offers high leverage, its usage scenario should be very clear:

– The Hang Seng Index clearly faces resistance between 26,000 and 26,061;

– Intraday signs of weakening emerge;

– Holding period is short-term;

– Not suitable for holding against the trend over the long term before the uptrend has reversed.

HSI BNP Paribas Bear Warrant K (65668)

– Exercise price: 26,950

– Knock-out price: 26,850

– Effective gearing: approximately 25.1x

The call price is about 1,000 points away from the current level, or roughly 3.8%. Its leverage is lower than the former, but offers a more reasonable safety margin.

If investors believe the Hang Seng Index will consolidate around the 26,000 level in the near term rather than drop sharply right away, a product with a call price of 26,850 points would better withstand a scenario where the index rises first and then falls.

Put Warrants: If you're bearish but don’t want to try timing the top, how should you choose?

HSI BOC Put A (13234):

– Strike Price: 23,800 points

– Effective Leverage: Approximately 9.8x

– Implied Volatility: Approximately 24.41%

The strike price is relatively far from the current level, making it suitable for scenarios where a significant correction in the Hang Seng Index is expected. If the index merely declines from 25,850 to 25,500 points, the product may not react strongly.

Another put warrant with a strike price near 22,500 points is even further out-of-the-money and may still offer substantial leverage, but it requires a more pronounced downtrend in the Hang Seng Index to fully reflect directional movement.

Therefore, although put warrants carry no knock-out risk, the issue of 'strike prices being too far out-of-the-money' cannot be ignored.

How should one position themselves at this stage?

Scenario 1: Hang Seng Index breaks above 26,061 and stabilizes

Consider call warrants or bull certificates with nearer knock-in levels, but watch whether the Hang Seng Tech Index simultaneously breaks above 4,894. If tech stocks do not follow suit, the sustainability of the Hang Seng Index’s breakout remains uncertain.

Scenario 2: Hang Seng Index meets resistance at 26,000 but holds above 25,500

This may still represent consolidation at higher levels, making it unsuitable to establish highly leveraged bear certificates too early. Call warrants or bull certificates with more distant knock-in levels would offer greater room for error compared to those with the nearest knock-in prices.

Scenario 3: Hang Seng Index breaks below 25,500

Risk for bull certificates rises significantly; first monitor whether the 25,000 level can hold. Bearish positioning should await confirmation rather than relying solely on an overbought RSI to predict a top.

The Hang Seng Index remains in a relatively strong pattern, but 'relatively strong' does not mean all bull certificates are suitable.

At this stage, the most important factor is not how high the leverage is, but rather:

Whether the knock-in price allows room for a normal market pullback.

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