New derivatives products open China-play options | SCMP

Investors looking to position themselves for a potential revaluation of the yuan, or simply wanting an easier way to trade the largest Hong Kong-listed China stocks, may consider a new set of derivatives products to be introduced today.

The new futures and options - based on the FTSE/Xinhua China 25 Index - have been created by Hong Kong Exchanges and Clearing following requests from investors who felt existing index derivatives failed to reflect some of the most significant Chinese companies listed in Hong Kong........

The FXI China 25 index, which tracks the 25 most widely followed and liquid Hong Kong-listed H shares or red chips on a free-float adjusted market capitalisation basis, avoids this by capping each stock at 10 per cent at the quarterly index rebalancing.

"Derivatives traders and structured product issuers like this kind of index very much as most of the stocks are easy to trade in and out of," Mr Tai said. "When you hold a portfolio or trade a basket of stocks you always worry about the liquidity of the smaller constituents, so limiting the total number of stocks to 25 is a wonderful idea for derivatives trading."

Also, there is already about US$1.2 billion invested in exchange traded funds (ETFs) in New York, London, Amsterdam and Frankfurt based on the FXI China 25 index. If you include an options contract on the New York ETF that trades in Philadelphia, and over-the-counter structured products linked to the index, those assets increase to about US$3 billion, according to the index providers........

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