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1. |
Who should trade the Bull
HYNs? |
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For an investor who does not mind accumulating
his favorite stocks at much lower prices than the
current market level. The breakeven cost of the
investment can be diluted by using this scale down
buying approach. |
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For an investor who believes the Bearish market
comes to the end but unlikely to turn Bullish in
the short run. Bull HYN can offer alternative opportunities
to gain high-yield return on the investment capital. |
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For an investor who has strong interest on the
underlying stock. Apart from purchasing the stock
at current market level, he can consider the at-the-money
Bull HYN. Extra high-yield can be accumulated if
the stock goes up, on the other hand, the stock
can be bought at discount if the stock comes down. |
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2. |
Who should trade the Bear
HYNs? |
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For an investor who views on the particular stock
is neutral to moderately Bearish. A yield enhancement
strategy can be implemented through purchasing the
Bear HYN below the technical resistance level. |
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For an investor who holds the stock and assumes
the stock will not break out in the near term. The
profit taking level can be moved upwards by using
this scale up selling approach. At the same time,
dividends of the stock can still be received upon
holding the stock. |
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If an investor who purchases the stock and sets
the profit taking level, he can buy the Bear HYN
simultaneously. The Bear HYN provides him with the
obligation to sell the stock beyond the strike level
(equals to the targeted profit taking level) with
extra yield gained. |
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3. |
Who should trade the knock-out
HYNs (a Bull HYN with an upside knock-out feature)? |
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For an investor who is ready to buy a Bull HYN
and believes that there may be a potential positive
news coming. In fact, it is difficult for you to
capture this sudden upside opportunities, so the
knock-out feature can provide him an precaution
for this opportunities to be happened. The HYN position
will be knocked out if the cap level is being hit.
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4. |
How can I hedge the downside
risk? |
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Apart from unwinding the Bull HYN in the
secondary market, an investor can also hedge the downside
risk exposure by short-selling the underlying stock at
the strike level. |
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5. |
What is Synthetic Bear Note? |
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A synthetic Bear note can be done by selling the
stock at the current market level and purchasing
an in-the-money Bull note.
For example,
If you are holding a stock and believe it can
be broken out in near term. You can simply sell
the stock at the current market level and buy
a 110% Bull HYN. The result can be illustrated
as follows:
Diagram
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Derivatives
