Hang Seng Index futures and option contracts (commonly known as HSI futures and HSI options in Hong Kong), are equity index products and major products of HKEX’s derivatives market in terms of trading volume. The Hong Kong Futures Exchange (HKFE), a wholly-owned subsidiary of HKEX, first introduced HSI futures contracts in May 1986 and then HSI option contracts in March 1993. The underlying asset of HSI futures and options is the Hang Seng Index which is compiled by Hang Seng Indexes Company Limited. The HSI, a market capitalisation-weighted index, is widely used as a benchmark for the performance of Hong Kong-listed stocks. Basically, there are two types of HSI option contracts, the call option and the put option. A call option gives its holder the right, but not the obligation, to buy the HSI at a predetermined price at expiry, whereas a put option gives its holder the right, but not the obligation, to sell the HSI at a predetermined price at expiry.
HSI futures and options have the following characteristics:
- The underlying asset is a benchmark for the performance of Hong Kong-listed stocks. Since the HSI is widely used as a benchmark for the performance of Hong Kong-listed stocks, HSI futures and options can be used as a hedging tool by investors to manage their risks from exposure to the Hong Kong stock market. Investors can also buy or sell HSI futures or option contracts for pure directional trading whenever they are bullish or bearish about the market.
- Cost effective
HSI Index futures and options facilitate investment in a cost-effective way as these contracts are traded on a margin basis. The margin to carry an open position is only a fraction of the contract’s value.
- Low transaction costs
As the total value of high-capitalisation stocks represented in each HSI futures and options contract is substantial and as commission is only charged once for each transaction in futures or options contracts, transaction costs are low compared to purchasing or selling the constituent stocks.
- Clearing house guarantee
Same as other futures and options contracts traded on HKFE, HSI futures and options are registered, cleared and guaranteed by the HKFE Clearing Corporation (HKCC), a subsidiary of HKEX. HKCC acts as the counter-party to all open contracts, which effectively eliminates counter-party risks between HKCC Participants. However, the guarantee does not cover an HKCC Participant’s obligations to its clients. Investors should exercise due care and diligence when deciding through whom they will conduct business.
The contract multiplier for HSI futures and options is 50 per index point. The contract months for HSI futures are spot, next calendar and next two calendar quarter months. The contract months for short-dated options contracts are spot, next two calendar and next three calendar quarter months, whereas those for long-dated options are the next five months of June and December.
For more information, investors can refer to "Hang Seng Index Futures & Options" under "Products & Services - Derivatives Products" on the HKEX website.