A trading strategy based on Callable Bull/Bear Contracts

Yan Leung Stephen CHEUNG, Yin-Wong CHEUNG, Angela W.W. HE, Alan T.K. WAN

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

The Callable Bull/Bear Contract is a barrier options contract recently introduced to the Hong Kong market. In this study, we propose a trading strategy that defines the entry point and exit point using information on the contract's call price and mandatory call event. Using data on contracts based on the Hong Kong Hang Seng Index, it is shown that the proposed trading strategy, on average, yields some decent trading returns that vary quite substantially across individual trades. Exploratory analyses indicate that trading returns are associated with volatility observed during a contract's lifespan and, to a lesser extent, with volatility in the pre-issuance period. Further, an issuer's relative issuing frequency may bear some implications for the trading strategy's performance. Copyright © 2009 Elsevier B.V. All rights reserved.
Original languageEnglish
Pages (from-to)186-198
JournalPacific-Basin Finance Journal
Volume18
Issue number2
DOIs
Publication statusPublished - Apr 2010

Citation

Cheung Y. L., Cheung, Y. W., He, W. W., & Wan, T. K. (2010). A trading strategy based on Callable Bull/Bear Contracts. Pacific-Basin Finance Journal, 18(2), 186-198. doi: 10.1016/j.pacfin.2009.11.002

Keywords

  • Barrier options
  • Trading returns
  • Daily highs and lows
  • VECM

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