Callable Bull/Bear Contracts
advancedCBBCleverageMCEwarrant
Exchange-traded leveraged products with a mandatory call feature. Popular among retail investors in Asia for short-term trading and hedging.
Contract Type
Category
Parameters
10$
1$100$
11$
1$100$
12$
1$100$
10:1
1:1100:1
10%
1%25%
1yr
0.25yr3yr
CBBC Price
$0.30
Effective Gearing
4.0x
[($12 - $10) + ($10 × 10% × 1)] ÷ 10 = $0.30
Payoff at Maturity
ProfitLoss
12$
5$20$
Payoff at Maturity
$0.20
P&L per Contract
$-0.10
Return
-33.3%
MCE Status
NOT TRIGGEREDResidual Value
$0.20
Scenario Analysis
Understanding CBBCs
What is a CBBC?
CBBCs are exchange-traded structured products that track an underlying asset with delta close to 1. They are issued by investment banks with T+2 settlement. Bull contracts for bullish views, bear contracts for bearish views. Barrier options are embedded in CBBC products.
CBBC Pricing Formulas
TEXTBOOK EXAMPLE: ABC Ltd Bull Contract
N-CBBC vs R-CBBC
| Feature | N-CBBC | R-CBBC |
|---|---|---|
| N = No residual | Call Price = Strike Price | Call Price ≠ Strike Price |
| MCE Payout | Zero — total loss | Small residual value |
| Risk Level | Higher (no cushion) | Slightly lower |
Textbook Scenarios (ABC Ltd Bull, Strike $10, Call $11, CR 10:1)
| Scenario | Spot | Value | P&L | Return |
|---|---|---|---|---|
| Sold before maturity | $15.00 | $0.55 | +$0.25 | +83.33% |
| MCE triggered | $10.50 | $0.05 | -$0.25 | -83.33% |
| Held to maturity | $15.00 | $0.50 | +$0.20 | +66.67% |
CBBC vs Warrants
| Factor | CBBC | Warrant |
|---|---|---|
| Mandatory Call | Yes (MCE) | No |
| Implied Volatility | Insignificant | Affects pricing |
| Delta | Close to 1 | Varies |
| Holding Cost | Financial cost (daily) | Time decay |
9 Key Risks of CBBCs (Section 6.11)
- Capital loss — can lose full investment amount
- Mandatory call — irrevocable once triggered, no recovery
- Gearing effect — magnifies both gains and losses
- Limited life — fixed lifespan, may expire worthless
- Trading near call price — volatile prices, wider spreads
- Price volatility — greater likelihood of knock-out
- Liquidity disruption — market disruption affects trading
- Financial cost — charged upfront for full period, lost on early termination
- Counterparty risk — issuer default risk