Guide for Beginners

As mentioned in the Guide for Beginners: What is a CBBC?, CBBCs have a call feature. Once the underlying asset price reaches the call price of a CBBC, trading in the CBBC will cease. The CBBC will be called back immediately and settled. Methods of settlement will be explained below.

Bulls are products for optimistic outlooks. Their call prices are set below spot prices.

For instance, the spot price of Tencent is $350. A Tencent bull at a call level of $330 indicates that such bull will be called back when Tencent’s stock price drops to $330.

Bears are products for pessimistic outlooks. Their call prices are set above spot prices.

For instance, the spot price of HSBC is $60. A HSBC bear at a call level of $70 indicates that such bear will be called back when HSBC’s stock price rises to $70.

Similar to the concept for a warrant, exercise price is the price at which purchases (in the case of bulls) or sales (in the case of bears) of underlying assets are made when the product expires. And as CBBCs are settled in cash, the exercise price can also be regarded as an indicator in calculating the product’s value, including the cash value upon expiry and the residual value after being called back.

Exercise prices of bulls are set below call prices.

For instance, the spot price of Tencent is $350. For a Tencent bull with a call price of $330 and an exercise price of $327, its price will be the difference between $327 and $350 plus funding cost.

Exercise prices of bears are set above call prices.

If the spot price of HSBC is $60, for an HSBC bear with a call price of $70 and an exercise price of $71, its price will be the difference between $60 and $71 plus funding cost.