Settlement: Settlement of CBBC upon Expiry
  • 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 27,238 points, with exercise price at 27,138 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:

    The settlement price of the Hang Seng Index Bull:
    (
    -
    ) ÷ 10000 = $0.0442
Consolidate your memory immediately!
Ping An bull: call level: $88.88 exercise price: $88.28, entitlement ratio: 100:1, and settlement price upon expiry: $90.68
After settlement,
Now you’ve learned about the structure, terms and movement of a CBBC, but how do you pick one in practice?
Correct!
Cash value of the stock bull =
(settlement price - exercise price) ÷ entitlement ratio
(90.68 – 88.28) ÷ 100
= $0.024
Wrong!
Cash value of the stock bull =
(settlement price - exercise price) ÷ entitlement ratio
(90.68 – 88.28) ÷ 100
= $0.024