# Guide for the More Experienced

Should the formula for the sensitivity of CBBCs, in fact, take the delta into account? • The delta of a CBBC is the number of shares in the underlying assets that the issuer needs to buy/sell for hedging purposes each time its sells/buys a CBBC.
The Guide for Beginners: Calculation of CBBC Price Movement has explained that CBBC's delta is usually close to 1. But in fact, a CBBC's delta will be subject to its pre-expiry date dividend frequency and payout ratio of the underlying asset. It usually ranges from 0.7 to 1.3, depending on the expiry date of and the dividend contained in the product.
• If a stock does not pay dividends, or before the expiry of the index CBBC, the constituent stocks do not include any dividends, the delta of the relevant CBBC will indeed be quite close to 1.

If the underlying assets will pay dividends before the product expires, the holder of the CBBC will not receive the dividend, but the stock price or index level will be reduced after the ex-dividend event. The longer the product’s tenor, the greater its delta’s deviation from 1, due to a greater frequency and amount of dividend being paid. The delta of a long-term bull may fall to 0.7 to 0.8; while the delta of a long-term bear may rise above 1.2.

In addition, a CBBC's delta will also change as the price of the underlying asset changes. The further the price of the underlying asset is from the exercise price of the CBBC, that is, the more in-the-money the CBBC is, the closer the delta will be to 1; and the closer the CBBC is to a call-back, the more the delta will fluctuate.

• The biggest impact of a CBBC's delta on the product is mainly on the sensitivity.

The sensitivity of a stock CBBC taking into account the delta =
minimum spread of underlying asset x delta
entitlement ratio x minimum spread of CBBC

For example, if the spot price of HSBC is \$65, the spot price and delta of an HSBC bull with an entitlement ratio of 100:1 is, respectively, \$0.060 and 0.9, its sensitivity is =

0.05 x 0.9
100 x 0.001
= 0.45

That is, if HSBC moves by 1 tick (\$0.05), assuming that all other factors remain unchanged, the price of a bull will move by 0.45 ticks. However, since a CBBC cannot move by less than 1 tick, the sensitivity should be that the bull will theoretically move by 1 tick (\$0.001) if HSBC moves by 3 ticks (\$0.15).

As for an HSBC bear with an entitlement ratio of 100:1, spot price of \$0.060 and delta of 1.1, its sensitivity is =

0.05 x 1.1
100 x 0.001
= 0.55

That is, if HSBC moves by 1 tick (\$0.05), the bull price will move by 0.55 tick. The sensitivity after conversion should be that the bull will theoretically move by 1 tick (\$0.001) if HSBC moves by 2 ticks (\$0.1).

Investors may find that after taking into account the delta, a bull's movement sensitivity is generally reduced, while a bear’s sensitivity is generally higher. However, after conversion into ticks, the impact does not seem to be large. Just like the HSBC bear in the above example, the movement sensitivity is in fact the same whether or not the delta had been taken into account. As time goes on, after the ex-dividend period has passed, the delta will gradually rise or fall to a level close to 1, and the sensitivity will gradually recover.

In addition, for the convenience of investors, this website has calculated the sensitivity of each CBBC product after taking into account the delta, and then displayed it as "approximate underlying price change for 1 tick price change of CBBC", which makes it easier for investors to calculate the product's theoretical movement. The relevant data can be obtained on the technical terms page of each CBBC product.

• The sensitivity of an index CBBC taking into account the delta=
entitlement ratio x minimum spread of CBBC
delta

For example, for a 10,000:1 bull with a spot price below \$0.25, if the delta is 0.85, its sensitivity is =

10000 x 0.001
0.85
11.8
that is, if the futures index moves by approximately 12 points, the bull's price will move by 1 tick (\$0.001).
As for a 12,000:1 bear with a spot price below \$0.25, if the delta is 1.15, its sensitivity is =
12000 x 0.001
1.15
10.4
that is, if the futures index moves by approximately 11 points, the bear's price will move by 1 tick (\$0.001).
Investors may find that after taking into account the delta, a bull's movement sensitivity is generally reduced, while a bear’s sensitivity is generally higher. As time goes on, after the ex-dividend period has passed, the delta will gradually rise or fall to a level close to 1, and the sensitivity will gradually recover.
In addition, for the convenience of investors, this website has calculated the sensitivity of each CBBC product after taking into account the delta, and then displayed it as "approximate futures change for 1 tick price change of CBBC", which makes it easier for investors to calculate the product's theoretical movement. The relevant data can be obtained on the technical terms page of each CBBC product.