What are warrants and CBBCs?

This article covers the basic concepts of warrants and callable bull/bear contracts (CBBCs), including the classification and abbreviation of warrants, as well as the definitions, categories, and characteristics of CBBCs, to help you understand these two financial instruments.

Warrants

1. What Are Warrants?

A warrant is essentially an option, which is equivalent to holding a virtual right. Warrants can be divided into call warrants and put warrants in terms of the holder's rights.

2. Call Warrants

Call warrants give the holder the right, but not the obligation, to buy a certain amount of the underlying assets at the exercise price for a specified period of time. If investors of the covered warrants are bullish about the future market trend of the underlying assets, they will buy the call warrants of the underlying assets.

3. Put Warrants

Put warrants give the holder the right, but not the obligation, to sell a certain amount of the underlying assets at the exercise price for a specified period of time. If investors of the covered warrants are bearish about the future market trend of the underlying assets, they will buy the put warrants of the underlying assets.

4. Meaning of Short Names

Let’s take 19171 as an example. Its short name is BP-HUAP@EC0501

• BP: The issuer is BNP
• HUAP: It indicates that the underlying asset is Huaneng Power International (903)
• @: It represents cash settlement. If the investor does not sell the warrant before the expiry date, the issuer will pay the investor the price spread in cash. If @ is replaced with *, it means the cash settlement of the underlying assets; if it is replaced with $, it means that it can be settled in cash or spot.
• E: It means that this warrant is a European covered warrant. “E” is the abbreviation of “European”.
• C: It refers that this is a call warrant, while “P” indicates a put warrant.
• 0501: The expiry date of this warrant is January 2005, but the specific expiry date cannot be reflected in the short name. The expiry date of 19197 is January 28, 2005, which can be found on the information page of this warrant.

CBBCs

What Are CBBCs?

CBBCs are structured products that can track the performance of the underlying assets without requiring investors to pay the full price required to own the actual assets, which has a leverage effect.

CBBCs are issued either as Bull or Bear contracts, with a fixed expiry date, exercise price, and call price. Investors can be bullish or bearish on the underlying assets and choose to buy Bull contracts or Bear contracts. CBBCs will be compulsorily called by the issuers when the price of the underlying assets reaches the Call Price.

Key takeaways:

• Warrant
  • Nature: a type of option, consisting of call warrants (bullish) and put warrants (bearish).
  • Call warrant: the right to buy the underlying asset at a predetermined price.
  • Put warrant: the right to sell the underlying asset at a predetermined price.
• CBBCs
  • Nature: structured products with a mandatory call mechanism, offering leverage effects.
  • Bull contract: for investors bullish on the underlying asset.
  • Bear contract: for investors bearish on the underlying asset.

Disclosures

This article is for reference only and does not constitute any investment advice.