港股窩輪Jenny

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Expected Value Ratio Case Study: Zijin Mining vs. Zijin Gold International

If you only looked at today’s gainers and losers list, neither of the two Zijin stocks would be very appealing.

Zijin Mining $ZIJIN MINING (02899.HK)$Zijin Gold International dropped 5.80% $ZIJIN GOLD INTL (02259.HK)$down 7.08%.

The typical retail investor’s immediate reaction would likely fall into one of two categories:

“It’s dropped so much—has the trend ended?”

Or:

“It’s dropped so much—should I scoop up a bargain at the bottom?”

But both of these questions are being asked too hastily.

Because these two stocks today happen to be an excellent case study for 'expected value ratio.'

Today's sharp drop doesn't mean the previous trend has suddenly disappeared

Let's first look at Zijin Mining.

Current price RMB 35.38, down 5.80% today, but:

– Still up over the past 5 days 6.95%

– Up over 10 days 9.06%

– Up over 20 days 17.87%

– Upside risk-reward ratio is approximately 9.77

Now let's look at Zijin Gold International.

Current price HKD 133.80, down 7.08% today, but:

– Up over 5 days 14.26%

– Up over 10 days 17.16%

– Up over 20 days 29.90%

– Upside risk-reward ratio is even as high as 18.26

This perfectly explains why we’ve always said that risk-reward ratio isn’t about 'predicting tomorrow.'

It simply combines data across different time horizons to help us assess which direction still appears more favorable at the moment.

Today’s sharp drop weakens short-term momentum, but the gains accumulated over the past 5, 10, and 20 days won’t vanish entirely just because of one day’s steep decline.

So the real question both stocks need to answer right now is:

Is today’s move merely a pullback in a strong stock, or has the trend officially turned negative?

Zijin Mining: ¥35.14 is the first answer

Zijin Mining’s first support level is around ¥35.14, and the second support level is around RMB 32.80; the first upside resistance is at RMB 37.78the vicinity.

The current price is RMB 35.38, in other words, it’s already very close to the first support.

This makes tomorrow look very promising.

If RMB 35.14 holds, today’s 5.8% drop could still be interpreted as a sharp pullback; however, if RMB 35.14 is decisively breached, the market will start looking toward RMB 32.80.

In other words:

This isn’t about ‘the risk-reward ratio is 9.77, so buy.’

Rather, it’s about ‘the risk-reward ratio remains tilted upward, but the price has now reached the level where this bullish bias must be confirmed.’

Zijin Gold International: higher risk-reward ratio, but also significantly more volatile

The first support for Zijin Gold International is around RMB 133.10, and the second support level is around RMB 126.35; the first resistance level is around RMB 146.20。

Current price is RMB 133.80, also very close to the first support level.

So both Zijin stocks are essentially working on the same test paper right now:

Can the support hold?

Zijin Gold International has gained 29.9% over the past 20 days, significantly outperforming Zijin Mining, thus offering a higher reward-to-risk ratio. However, precisely because it has risen more sharply, its price swings could be larger if a pullback begins today.

This is one aspect of 'high reward-to-risk ratio' that’s often easily overlooked.

High does not equal low risk.

Often, it actually indicates that the prior trend was very strong, and you need to accept greater short-term volatility.

Even more interestingly: the underlying stock may offer better value than the call option, which isn't necessarily more attractive.

If looking only at the stocks, Zijin Gold International is clearly stronger than Zijin Mining.

But once you examine the products, the story changes.

Some calls on Zijin Mining can be found with strike prices approximately 1.4% out-of-the-moneywith an effective gearing of about 4.3xand IV of around 51.8%。

Zijin Mining's international gold segment has calls that are only about 2.1% out-of-the-money, yet implied volatility (IV) is already around 71.6%, with effective gearing of approximately 2.9 times。

This leads to an interesting outcome:

The underlying stock of Zijin Mining's international gold segment offers better value, but expressing this view via calls could actually cost more.

This is also why I’ve always felt it’s not enough to just figure out 'which stock you’re most bullish on.'

You also need to ask:

How much is the market charging you to buy into this view?

If I’m bullish on both, I’d compare the 'instruments' first.

Assume you yourself judge that gold stocks are merely undergoing a pullback, and you're bullish on both.

In that case, Zijin Gold International has the advantage of a stronger underlying stock trend, a larger 20-day gain, and higher reward-to-risk ratio; however, some call warrants on Zijin Mining have lower implied volatility (IV) and higher effective gearing.

This leads to a genuinely interesting choice:

Do you want to buy based on a stronger underlying stock story, or opt for more favorable warrant terms?

There’s no single answer that’s always correct.

But at least, it’s far more meaningful than simply buying whichever stock has dropped more.

How should the reward-to-risk ratio really be used?

Some people look at charts, others examine RSI, Bollinger Bands, moving averages, volume, fund flows, or news.

In reality, we’re all just estimating the future.

The only difference is that we try to combine 5-day, 10-day, and 20-day price trends, support and resistance levels, along with warrant and CBBC data—such as gearing, implied volatility (IV), and delta—in hopes of having a more informed basis for our estimates.

So, the reward-to-risk ratios of 9.77 or 18.26 are not 'bull market probabilities.'

Even less are they guaranteed winning formulas.

Their real purpose is:

To help you identify targets worth further research, and then decide—based on price levels and product terms—whether they’re worth investing in.

Today’s two Zijin Mining warrants are a perfect example.

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