Guide for the More Experienced

Is it the case that the heavier the object that falls on one end of the lever, the higher the object at the other end will jump?
  • In Warrant．Guide for the More Experienced: Different Stock Prices, Different Minimum Spreads, we have explained "minimum spread"; that is, under the rules of the stock exchange, when listed securities are in different price ranges, the minimum spreads for movements are also different, detailed as follows:
    Security
    price
    ($)    		 Minimum
    spread
    From 0.01 to 0.25 0.001
    Above 0.25 to 0.50 0.005
    Above 0.50 to 10 0.010
    Above 10 to 20 0.02
    Above 20 to 100 0.05
    Above 100 to 200 0.10
    Above 200 to 500 0.20
    Above 500 to 1,000 0.50
    Above 1,000 to 2,000 1.0
    Above 2,000 to 5,000 2.0
    Above 5,000 to 9,995 5.0
    Since the formula for calculating the movement sensitivity of a CBBC also takes into account the minimum spread, the sensitivity of a CBBC will also be affected if there is a change in its minimum spread due to the movement of the price of the underlying asset or CBBC.
  • Since each unit of movement in the futures index is "1 point", its minimum spread will not change; however, for stock CBBCs, if the price of the underlying assets increases or drops to a different range, the sensitivity of the relevant CBBCs will also be different.
    Stock CBBC sensitivity =
    minimum spread of underlying assets x delta
    entitlement ratio x minimum spread of CBBC
    Taking a 50:1 bull of China Life Insurance as an example, say its delta is 1 and spot price is $0.06, when the price of China Life Insurance is less than $20, and the minimum spread of the underlying assets is $0.02, its sensitivity is =
    0.02 x 1
    50 x 0.001
    = 0.4
    That is, when the price of China Life Insurance moves by 1 tick ($0.02), it is insufficient to drive the bull price to move by 1 tick; only when the price of the underlying asset moves by 3 ticks ($0.06) can the bull price move by 1 tick ($0.001).
    However, when the price of China Life Insurance is above $20, the minimum spread of the underlying asset is changed to $0.05, its sensitivity is =
    0.05 x 1
    50 x 0.001
    = 1
    That is, when the price of China Life Insurance moves by 1 tick ($0.05), the bull price will move by 1 tick ($0.001). The CBBC’s sensitivity has increased significantly with the increase in the minimum spread of the underlying asset.
  • In addition to the stock price, when CBBCs are in different ranges, their minimum spreads will be different and the sensitivities of the relevant CBBCs will also be different. The influence is most noticeable impact can be seen in an HSI CBBC. Let's review the formula for calculating its sensitivity:
    The sensitivity of an index CBBC =
    entitlement ratio x minimum spread of CBBC
    delta
    Say a bull has a delta of 1, an entitlement ratio of 10,000:1 and the price below $0.25; when the futures index moves by 10 points, the bull price will theoretically move by 1 tick ($0.001).
    However, when the product becomes further from its call level, and the bull price rises above $0.25, its sensitivity will become 10000 x 0.005 = 50; that is, when the futures index moves by 50 points, the bull price will theoretically only move by 1 tick ($0.005)! No wonder CBBCs with further call levels have always been rather unpopular!
    As for a stock CBBC, again say the delta is 1, the spot price of Xiaomi is $10.2, and the spot price of a 10:1 Xiaomi bull is $0.240. When the minimum spreads of the underlying asset and bull are $0.02 and $0.001 respectively, its sensitivity is =
    0.02 x 1
    10 x 0.001
    = 2
    That is, when Xiaomi's stock price moves by 1 tick ($0.02), assuming all other factors remain unchanged, the bull price will move by 2 ticks ($0.002).
    However, when the bull price rises to $0.26, the minimum spread of the bull will be changed to $0.005, its sensitivity is =
    0.02 x 1
    10 x 0.005
    = 0.4
    That is, when the stock price of Xiaomi moves by 3 ticks ($0.06), the bull price will only move by 1 tick ($0.005). The bull's sensitivity has dropped significantly with the increase in the minimum spread of the bull price. It also explains why CBBCs priced below $0.25 are generally more popular with investors.
Consolidate your memory immediately!
Say the delta is 1, and an HSI bull has an entitlement ratio of 10000: 1, when the bull price is $0.062, its sensitivity is such that when the futures index moves by 10 points, its price will move by 1 tick,
when the bull price is $0.265, its sensitivity is such that when
For two bulls with the same movement sensitivity, why do they have different leverage?
Please refer to
"Movement: Difference Between Leverage and Sensitivity"
Difference Between Leverage and Sensitivity Dividend Amount and Ex-dividend Date are Different from Expectations Comparison of Bid-ask Spreads
Extended Readings：
CS Interact
Correct!
When the bull price rises above $0.25, the minimum spread of the bull will be $0.05,
its sensitivity is = 10000 x 0.005 = 50; that is, when the futures index moves by 50 points, the bull price will theoretically move by 1 tick.
Wrong!
When the bull price rises above $0.25, the minimum spread of the bull will be $0.05,
its sensitivity is = 10000 x 0.005 = 50; that is, when the futures index moves by 50 points, the bull price will theoretically move by 1 tick.