CATL dropped 5%, yet funds have flowed in for eight consecutive days: Is this a washout, or are warrant bulls refusing to throw in the towel?

CATL $CATL (03750.HK)$ On August 6, the price action appeared straightforward on the surface: the stock plunged 5.05%, retreating from its high of RMB 692 to an intraday low of RMB 623, and closed at RMB 628.

However, when we combine fund flow data with warrant activity, the situation becomes far less simple.

That day, main-force funds still recorded a net inflow of approximately RMB 75.35 million, marking the eighth consecutive day of inflows. In the warrant market, call warrants traded around RMB 113 million, significantly higher than the put warrants’ RMB 13.24 million; bull certificates saw about RMB 15.98 million in turnover, compared to just RMB 2.55 million for bear certificates.

In other words, despite the sharp drop in the underlying stock, the majority of warrant-related capital remained positioned on the bullish side.

This divergence most easily leads retail investors to one conclusion: big players are still accumulating shares, this is merely a shakeout, and buying calls on the dip is the way to go.

The problem is, fund inflows don’t guarantee an immediate price rebound, and popular call warrants may not be the most suitable instruments for betting on a reversal.

This decline isn't just an ordinary pullback

CATL’s intraday volatility exceeded 10% that day, with trading volume noticeably higher than usual, as the share price slid steadily from RMB 692 down to around RMB 628. This wasn’t a minor correction after a modest rally—just a 1–2% dip—but rather reflected significant intraday divergence among market participants.

More notably, although the stock price plunged sharply in a single day, it was still up approximately 1.4% over the past five days and roughly flat over ten days. In other words, this drop has not yet fully disrupted the medium-term trend, but short-term momentum-chasing capital has clearly been hurt.

Therefore, net fund inflows on a given day can stem from many causes: some investors may be buying at lower levels, funds could be adjusting positions, or buying pressure might simply be more concentrated than selling—none of which guarantee an upward move the next day.

The most common mistake retail investors make is treating 'eight consecutive days of inflows' as a guarantee.

Fund flows only indicate that someone is willing to take the other side of the trade; they do not prove that selling pressure has ended.

High trading volume in call warrants does not mean the market has made a good selection.

On that day, CATL call warrants recorded turnover exceeding RMB 113 million, and most popular products were not at-the-money.

The highest-volume series had strike prices ranging from approximately RMB 829 to RMB 889—about 32% to 42% out-of-the-money relative to the underlying share price of RMB 628—and traded at roughly HK$0.05 to HK$0.10, with effective gearing of about 4.5x to 5.7x.

On the surface, these products appear inexpensive and offer several times of gearing, seemingly ideal for betting on a rebound. However, it would take more than just a day or two for the underlying stock to rise from RMB 628 back above RMB 800.

Whether these out-of-the-money call warrants will rise in the short term mainly depends on three factors:

How quickly the underlying stock rebounds; whether the market’s implied volatility estimate for CATL’s future price swings declines; and whether the warrant still has sufficient time to expiry.

If the stock price only rebounds from RMB 628 to RMB 640 or RMB 650, the call warrants may rise—but likely not as much as retail investors imagine. If implied volatility also drops simultaneously, the warrants might even show only a modest increase despite the underlying’s rebound.

Therefore, what retail investors are buying isn’t just the judgment that 'CATL will rebound,' but the stricter judgment that 'CATL must rebound sufficiently fast within a certain timeframe.'

What truly deserves comparison are at-the-money and out-of-the-money products.

If one is only bullish on CATL’s short-to-medium-term rebound, the warrant terms should first be selected based on how much the underlying stock needs to rise.

A call warrant that is 30–40% out-of-the-money is indeed cheaper, but it has a lower delta, meaning its price reacts relatively weakly to each yuan of movement in the underlying stock. It is best suited for sharp, rapid directional moves.

If only a technical rebound is expected, a more at-the-money call warrant—with higher delta and longer time to expiry—will typically reflect changes in the underlying stock more directly. Although such warrants have higher unit prices and seemingly lower leverage, they don’t require a sudden surge in the underlying stock to produce a reasonable response.

Another option is bull certificates.

Trading volume of CATL bull certificates was around RMB 15.98 million today, reflecting that some traders are also using bull certificates to bet on a rebound. The advantage of bull certificates is their more direct price correlation with the underlying stock, without being affected by changes in implied volatility as with warrants; however, they come with a knock-out (recall) price.

Given CATL’s single-day price swing exceeded 10%, bull certificates with knock-out prices too close to the current market price are unsuitable for overnight holding. Today’s lowest price was RMB 623; even if the rebound outlook proves correct tomorrow, an early dip toward today’s low could still trigger a knock-out of tightly priced bull certificates.

What retail investors really need to choose isn’t between long or short positions,

The market direction on this day is very clear: the majority of warrant capital remains bullish.

However, the issue retail investors need to address isn't whether 'the market is bullish,' but rather what their own investment time horizon is.

If you expect the stock price to rebound sharply the next day, bull certificates or call warrants with higher delta would be more direct choices; if you believe the stock will gradually recover over several weeks after a pullback, longer-dated, moderately out-of-the-money call warrants would be more suitable; if you're only buying because the stock dropped 5% and can't specify a support level or conditions for a rebound, the most reasonable choice might be not to buy at all.

CATL has still gained nearly 30% over the past 120 days and is up more than 26% year-to-date—the medium-term strength may not vanish entirely due to a single day’s decline. However, precisely because it had accumulated significant gains beforehand, volatility following a sharp drop could persist.

Don’t use a long-term bullish view as justification to buy highly leveraged products at any price.

What should you do next time?

First, check whether the stock can hold around the HK$623 support level. If the price quickly breaks below that day’s low, the narrative of a 'shakeout' would need to be reassessed.

Second, don’t accept warrants that are 30–40% out-of-the-money just because they’re cheap. First ask yourself how much you expect the stock to rebound, then work backward to determine a reasonable strike price.

Third, always consider the knock-in distance for bull certificates. CATL can exhibit large intraday price swings—if the knock-in price is only a few percentage points away from the current price, the holding risk is significantly higher than that of typical large-cap blue chips.

In summary: Continuous capital inflows may indicate someone is accumulating shares, but they don’t confirm the downtrend is over. When betting on a CATL rebound, the biggest risk isn’t necessarily getting the direction wrong—it’s buying products that only respond if the stock surges dramatically.

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