Hong Kong and US pharmaceutical stocks remain active; have you positioned your portfolio?
The strongest stocks aren't necessarily the best to chase: While Master Kong, Akeso, and Lenovo offer high risk-reward ratios, their warrant/cbBC choices differ significantly.
If you only look at the upside risk-reward ratios we calculated today, you might easily be drawn to three stocks:
Master Kong, Lenovo, and Akeso.
All three are among the top-scoring picks today.
The underlying stocks themselves are indeed very strong.
But if you dive into the warrant and CBBC products, you'll discover a frequently overlooked issue:
Being bullish on the underlying stock doesn't mean there's a Call warrant worth buying right now.
These two considerations must be treated separately.
Master Kong rose today 6.75%, marking its second consecutive gain and hitting a new high of over four years during intraday trading. The upside risk-reward ratio is approximately 86.7, among the highest batch today.
If looking purely at the underlying shares, there is little to criticize.
But when looking at warrants and CBBCs, issues begin to emerge.
The outstanding volume of Call warrants dropped sharply in a single day today 58.60%, and after filtering based on conditions, there are only 1 relatively suitable Call warrant。
This is the most typical case:
The stock looks good, but you may not have many suitable tools to choose from.
If the only suitable product has a high implied volatility (IV), an inappropriate effective leverage, or terms that don't match your holding period, it is perfectly fine to sit out.
The stock market won't deny you future opportunities just because you didn't buy calls today.
Lenovo $LENOVO GROUP (00992.HK)$ : The underlying stock is most volatile, so be extra cautious about chasing the price.
Lenovo rose today 20.81%, hitting a new listing high, with an upside potential of approximately 85.6。
And unlike Master Kong, the "Product Overview" includes Three suitable call warrants for comparison.
On the surface, this seems much easier to handle.
But here comes the problem again:
If the underlying stock surges 20% in a day and you buy calls only now, are you buying into an uptrend, or are you buying into already elevated implied volatility?
What’s more noteworthy is that the outstanding volume of Lenovo call warrants has declined for two consecutive sessions.
At this point, I would line up these three call warrants side by side:
Which one has a more reasonable degree of out-of-the-money?
Which one has effective leverage that isn’t too exaggerated?
Which one has sufficient time to maturity?
Which implied volatility (IV) is not significantly more expensive than its peers?
What we should really be looking for is not "maximum leverage," butthe one where the product can still reasonably reflect a further 5% rise in the underlying stock.
Akeso Biopharma $AKESO (09926.HK)$ : Eight consecutive gains, yet the outstanding volume of bull contracts has been declining.
Akeso Biopharma rose today by 1.47%, marking its eighth consecutive gain and currently challenging the upper Bollinger Band. The upside potential is approximately 81.3。
If we look solely at the trend of the underlying stock, it remains very strong.
However, the street position data presents another interesting picture:
Outstanding call warrants have fallen for four consecutive sessions, while the outstanding volume of bull contracts has even more Six consecutive daily declines。
Specifically, while the stock price has been rising steadily, some leveraged long positions have been decreasing.
This likely just means investors have been profiting consistently, but it also reminds us that we are no longer in the 'initial breakout' phase.
A stock may still offer high risk-reward potential from its first day of breakout through eight consecutive days of gains, butthe margin of safety will certainly not be the same as on the first day.
Therefore, Akeso's primary consideration now should be the cost of chasing the price.
If the implied volatility (IV) of the call options is already elevated, I would prefer to use less leverage rather than pay excessive time value and volatility premium to chase a trend that has already run for eight days.
So, which one is actually the best?
If we look solely at the underlying stock performance:
All three are strong.
If we assess product completeness:
Lenovo is the best.
If we ask whether it’s a good time to chase the rally now:
I would actually be most cautious with Lenovo, as its underlying stock has already surged 20% in a single day.
The issue with Tingyi (Cayman Islands) Holding Corp. is that its product selection is not diverse enough.
The problem with Akeso is that the uptrend has already run for some time, making the risk of chasing higher prices increasingly significant.
This illustrates one point:
The strongest stocks do not necessarily have the best products; the best products do not necessarily appear at the most opportune time to buy.
Therefore, investing in warrants and CBBCs actually involves two decisions.
The first is selecting the underlying stock.
The second step is selecting the product.
Many people get the first step right, but mess up the second.
When they see a stock rising, they randomly pick a call option; when they see high leverage, they assume the returns will definitely be better.
But what you should really compare are:
– In-the-money / Out-of-the-money status
– Expiration date
– Effective leverage
– Delta (hedge ratio)
- IV
- Time value
- Bid-ask spread
– For callable bull/bear contracts (CBBCs), also check the call price distance
Getting the direction right is just the beginning.
Whether you ultimately make a profit often hinges on the products you choose to buy, as this is what truly creates the performance gap.
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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