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How to calculate the residual value of a bull/bear contract after mandatory withdrawal?
1、 Calculation formula
The bull and bear contracts traded on the Hong Kong stock market are all R-class bull and bear contracts, which have residual value after mandatory recovery. The specific calculation method is as follows:
Bull Securities: (the lowest spot price of the relevant assets during the valuation period of the mandatory recovery event - exercise price)/stock conversion ratio
Bear Securities: (Exercise Price - highest spot price of the relevant asset during the valuation period of the mandatory recovery event)/Conversion Ratio
Bull Securities: (the lowest spot price of the relevant assets during the valuation period of the mandatory recovery event - exercise price)/stock conversion ratio
Bear Securities: (Exercise Price - highest spot price of the relevant asset during the valuation period of the mandatory recovery event)/Conversion Ratio
2、 Example:
As shown in the picture, there is a bull certificate about Tencent, and the indicators related to residual value are:
Redemption price: 320.88
Exercise price: 318.88
Conversion ratio: 100
1) In theory, assuming that Tencent's stock price drops to 320.88 at 10:00 on October 1st, a forced buyback event will be triggered, and the bull certificate will be forcibly taken back. The remaining value of the bull certificate at this time is:
(Redemption Price Exercise Price)/Conversion Ratio, i.e.: (320.88-318.22)/100=0.02
0.02 is theoretically the maximum residual value for this bull certificate.
2) In practice, after triggering a forced recovery event, the valuation period for the forced recovery event will enter.
In this example, if Niuzheng triggers a forced buyback event at 10:00 on October 1st (i.e. Tencent's stock price drops to 320.88), the final deadline for the valuation period is the closing of the market on October 1st.
During this period, the residual value will be calculated based on the lowest price of Tencent's stock price. If we assume that Tencent's stock price continues to decline and drops to a minimum of 318.88, then the remaining value of Niuzheng at this time is: (318.88-318.88)/100=0
Afterwards, regardless of whether Tencent's stock price resumes its upward trend or not, after the mandatory buyback event valuation period ends, the final remaining value of the bull certificate will be 0
The actual changes can still be referred to in the following diagram using the example of cattle certification:
Redemption price: 320.88
Exercise price: 318.88
Conversion ratio: 100
1) In theory, assuming that Tencent's stock price drops to 320.88 at 10:00 on October 1st, a forced buyback event will be triggered, and the bull certificate will be forcibly taken back. The remaining value of the bull certificate at this time is:
(Redemption Price Exercise Price)/Conversion Ratio, i.e.: (320.88-318.22)/100=0.02
0.02 is theoretically the maximum residual value for this bull certificate.
2) In practice, after triggering a forced recovery event, the valuation period for the forced recovery event will enter.
In this example, if Niuzheng triggers a forced buyback event at 10:00 on October 1st (i.e. Tencent's stock price drops to 320.88), the final deadline for the valuation period is the closing of the market on October 1st.
During this period, the residual value will be calculated based on the lowest price of Tencent's stock price. If we assume that Tencent's stock price continues to decline and drops to a minimum of 318.88, then the remaining value of Niuzheng at this time is: (318.88-318.88)/100=0
Afterwards, regardless of whether Tencent's stock price resumes its upward trend or not, after the mandatory buyback event valuation period ends, the final remaining value of the bull certificate will be 0
The actual changes can still be referred to in the following diagram using the example of cattle certification:
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