Inline Warrants


 

What is Inline Warrants?

 

Inline Warrants are a type of structured product that entitles the investors to receive a pre-determined fixed payment at expiry.  At expiry, investors will receive HK$1 per inline warrant held when the underlying asset falls at or within the Upper and Lower Strikes (In-The-Range) or HK$0.25 per inline warrant held when the underlying asset falls outside the Upper and Lower Strikes (Out-of-The-Range).

Due to the pre-determined fixed maximum payment at expiry of HK$1, an inline warrant should not be traded above HK$1.  Investors will suffer a loss by buying an inline warrant above HK$1.

Inline Warrants may be issued with a lifespan of six months to five years.  They may be bought and sold prior to their expiry on the cash market of HKEX.  At expiry, settlement is made in cash only.

Eligible Underlying Asset

 

1. HSI

2. Top 5 most liquid stocks by turnover [1]

  • Tencent (700)
  • Ping An (2318)
  • CCB (939)
  • AIA (1299)
  • China Mobile (941)

Stock Code Allocation Table for Inline Warrants

 

Ranges 47000-48999

 

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[1] At launch in July, Inline Warrants will initially be issued on the five most actively-traded stocks on the Exchange, as well as on the Hang Seng Index.

Basic Information

 

  • Eligible Underlying:HSI、Top 5 most liquid stocks by turnover ﹝subject to review after launch﹞
  • Strike Prices:Must have 2 strike prices ﹝Lower and Upper Strikes﹞
  • Minimum Fixed Payment at Expiry :HK$0.25 [1]
  • Maximum Fixed Payment at Expiry:HK$1.00 [2]
  • Investors’ Maximum P&L
    Maximum Profit = HK$1 – Cost of Inline Warrant
    Maximum Loss = Cost of Inline Warrant – HK$0.25
  • Valuation at Expiry
    Index underlying: Final settlement price of the underlying index futures contracts with same expiry month of inline warrants
    Stock underlying: Average of the closing prices of the underlying stock for five trading days immediately preceding expiry day
  • Duration:Minimum 6 months
  • Settlement:Cash

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[1] Due to the minimum fixed payment at expiry, Inline Warrants are expected to trade at or above HK$0.25
[2] Due to the maximum fixed payment at expiry, Inline Warrants should not be traded above HK$1. Investors will suffer a loss by buying an inline warrant above HK$1.

Features

 

Upper and Lower Strikes, with no knockout barrier

In-The-Range (ITR): fixed payment of HK$1
Out-of-The-Range (OTR): fixed payment of HK$0.25
** Investors will suffer a loss by buying an inline warrant above HK$1

Maximum upside and downside is known at the time of investment

Can be bought and sold before expiry or held until maturity

 

Advantages

 

  • Range trading vs directional trading (DWs or CBBCs)
  • Possibility to make profits in a sideway or flat market
  • Investors may choose from different strike prices to express their views on the underlying stock price or index level

Risks

 

  • Profit potential is capped by the pre-determined payment
  • Maximum loss is limited to initial investment
  • Trading above HK$1 may not reflect the true value of the inline warrant

ZZ – Issuer’s short name

Q – Underlying asset (up to 5 characters)

@ – Cash settlement

L – Inline Warrant

YYMM – Expiry year and month

A – Serial number for additional issues by the same issuer on same underlying with same expiry year and month (A, B, C …)