(90.68 – 88.28) ÷ 100
Once it reaches the last trading day, trading for a non-KOed-CBBC will stop while it awaits settlement. Once expired, a CBBC will be settled in cash and delisted automatically.
The formula for the settlement of a CBBC upon expiry is as follows:
Cash value of a bull =
(settlement price - exercise price) ÷ entitlement ratio
Cash value of a bear =
(exercise price - settlement price) ÷ entitlement ratio
To settle CBBCs, you need to put the settlement price into the formula. The settlement price of a stock CBBC is the closing price of the underlying stock upon the expiry date, which is the same as the last trading day of that CBBC. For example:
A 100:1 HSBC bull has the call level of $62.88 and exercise price of $61.88, its expiry date is May 31, and the last trading day is May 30:
Mon | Tue | Wed | Thur | Fri | |
---|---|---|---|---|---|
May 27 | May 28 | May 29 | May 30 | May 31 | |
Closing price of HSBC | 64.75 | 64.85 | 64.65 | 65.05 | 65.35 |
The settlement price is the closing prices of May 30, which is at $65.05. Be aware that we will not take the closing price of expiry day May 31.
The settlement price = $65.05
The settlement price = $65.05
(65.05 – 61.88) ÷ 100 = $0.0317
To settle an index CBBC, the EAS (i.e., the 5-minute average price announced by the Exchanges) on the expiry date of the CBBC will be taken as the settlement price.
For example, the call level of a Hang Seng Index bull is 27,338 points, with exercise price at 27,238 points. Its entitlement ratio is 10,000: 1, its expiry date is May 30, and the EAS on the expiry date is 27,680 points: