Despite the Hang Seng Index's decline, bull warrant turnover remains nearly double that of bear warrants: Are retail investors bottom-fishing again, or has the market truly oversold?

Hang Seng Index $Hang Seng Index (800000.HK)$ When the market drops, retail investors’ first instinct is usually not to chase bear warrants, but to open the list of bull warrants and start looking for products that are 'close-to-the-money, cheap, and highly leveraged' to bet on a rebound.

This exact scenario played out again in the market on August 6.

With the Hang Seng Index trading around 25,530 points, bull warrant turnover exceeded HK$8.1 billion for the day, compared to approximately HK$4.09 billion for bear warrants. In other words, despite the market’s downward move, capital flowing into bull warrants was still nearly double that going into bear warrants.

What’s most noteworthy about this figure isn’t that bulls outnumber bears, but rather the method retail investors are using to bet on a rebound.

Buying bull warrants during a market decline isn’t inherently wrong.

After a market drop, when the index approaches a support level, buying bull warrants to speculate on an intraday rebound is a common short-term strategy. Especially with the wide selection and high liquidity of Hang Seng Index bull warrants—even a modest rebound of several dozen points can produce noticeable price movements in these products.

The issue is that on August 6, many of the most actively traded bull warrants had knock-in (or call) prices very close to the current index level.

Some popular bull warrants had knock-in levels less than 1% below the Hang Seng Index, with leverage exceeding 80x; another group of heavily traded products had knock-in distances of around 1.5%, with leverage also exceeding 50x.

These products appear highly attractive: low in price, sensitive to small moves, and capable of delivering exaggerated paper returns with even a slight bounce in the Hang Seng Index.

But looking at it another way, if the Hang Seng Index drops just another 200–300 points, the product could be called immediately. You won’t miss the rebound—you’ll be knocked out before it even arrives.

On August 6, one batch of at-the-money callable bull certificates suffered single-day losses of 50% to 60%. This is precisely how at-the-money bull certificates really work: what you’re buying isn’t a rebound position you can afford to wait on patiently, but a rebound that must happen within a very short time frame.

The most common mistake retail investors make is equating 'a large drop' with 'a guaranteed rebound.'

Many people’s logic when selecting bull certificates goes like this:

The Hang Seng Index dropped sharply today, so it should be close to bottoming out; the product has already lost half its value, so the entry price looks cheap; as long as there’s a rebound tomorrow, I can make a 30–50% profit.

Each of these three statements sounds reasonable on its own—but together, they may not hold up.

A large drop in the index doesn’t mean the downtrend is over; a 50% decline in the product doesn’t necessarily mean it’s become cheaper—it might simply reflect a sudden spike in knock-out risk. Moreover, the market doesn’t need to drop much further; if it just opens lower tomorrow morning, at-the-money bull certificates could already be in trouble.

What really matters is whether the Hang Seng Index has met conditions indicating a halt to the decline—not whether the bull certificate’s price has been beaten down enough.

If the index still closes near lows, short-term selling pressure remains, or overseas markets face overnight risks, the most at-the-money bull certificates aren’t necessarily the ones with the best risk-reward ratio—they’re just the ones that most easily create the illusion of 'betting a small amount for a huge payoff.'

Higher trading volume in bull certificates compared to bear certificates may also suggest the market hasn’t truly capitulated yet.

When the market experiences a sharp decline, if substantial funds continue flowing into bull certificates, there are typically two interpretations.

The first is that investors believe the sell-off is merely a shakeout and are buying the dip in anticipation of a rebound; the second is that many market participants still refuse to accept that the trend has turned bearish, continuously adding to bull certificates as the market keeps falling.

Although these two scenarios appear similar on the surface, their outcomes can be vastly different.

If the Hang Seng Index quickly recovers its losses, the capital invested in bull certificates will be rewarded; however, if the broader market only drops for one day, pauses briefly, and then resumes its decline in a second leg down, the most aggressive dip-buying capital could instead become the next wave of stop-loss orders.

Therefore, high trading volume in bull certificates is not a bullish signal, nor proof that the market has bottomed. It only tells you that many market participants are betting on a rebound.

Whether or not their bet is correct depends on the index’s direction—not on trading volume.

If you truly want to bet on a rebound, how should you select the terms of your bull certificate?

First, don’t prioritize maximum leverage above all else.

Hang Seng Index bull certificates with 50x or 80x leverage may seem more attractive than those with 20x leverage, but the extra leverage isn’t free—it comes at the cost of a strike price closer to the current market level. When market direction is unclear, a strike price that’s too close leaves you with no room for error.

Second, the distance to the knock-out (recall) level should align with your intended holding period.

If you only plan to hold intraday for a few dozen minutes, you can accept products closer to the spot price, but must have a clear stop-loss; if you intend to hold overnight, you should not use products with a knock-in distance of less than 1%. An overnight gap-down is a risk beyond your control.

Third, consider the bid-ask spread.

Although some near-the-money bull certificates have high trading volumes, their bid-ask spreads exceed one tick. Since the product price itself is only a few cents, a spread of two or three ticks means you immediately incur a loss of several percentage points upon entry, significantly increasing the difficulty of short-term trading.

Bear certificates shouldn't be bought indiscriminately just because the market is falling.

On the other side, although bear certificate turnover is only about half that of bull certificates, popular products are equally aggressive.

Some actively traded bear certificates have knock-in levels only about 1.4% to 1.8% away from the Hang Seng Index, with leverage ratios of approximately 47x to 58x. On August 6, when the Hang Seng Index declined, these products surged by dozens of percentage points in a single day—some even more than doubling.

The most dangerous time for these products is often not at the start of a market decline, but when chasing them after the drop has already occurred.

If you only buy bear certificates after they’ve already surged significantly—simply because you see the Hang Seng Index weakening—even a slight gap-up or technical rebound the next day can cause rapid and sharp pullbacks. Bear certificates don’t automatically become low-risk just because the market direction is downward.

The real signal on this day

The key takeaway from August 6 wasn't 'many market participants were bullish on the Hang Seng Index,' but ratherLarge amounts of capital are still using deep-in-the-money products to bet on a trend reversal.。

Such positioning can yield quick wins, but there’s no second chance if you make a mistake.

For retail investors, the next time you see a sharp drop in the Hang Seng Index, don’t first ask which bull certificate has the highest leverage—instead, ask yourself:

Has the Hang Seng Index already stopped falling?

How long am I prepared to hold?

If the index drops another 200 points, will my product still be alive?

In short: buying bull certificates in a falling market isn’t scary—the real danger is turning a 'bet on a rebound' into a 'belief that a rebound is certain,' and then stubbornly catching the falling knife with the most aggressive, deep-in-the-money products.

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