Hang Seng Indexes has launched four covered call indexes, each of which is designed to replicate one of the various portfolios that employ the ‘Covered Call’ investment strategy on the Hang Seng Index (HSI) and the Hang Seng China Enterprises Index (HSCEI).
The company also added the Hang Seng Stock Connect Greater Bay Area High Dividend Yield Index to its Hang Seng Stock Connect Greater Bay Area Index Series.
The covered call indexes reflect a strategy in which an investor holds an investment in an underlying index and simultaneously sells call options of that index. This strategy provides a certain level of downside protection through receiving premiums from selling the call options. On the other hand, the upside potential of the investment in the underlying index will be limited by the short position of the call options. Based on the two underlying indexes – HSI and HSCEI – the four covered call indexes are as follows: HSI Covered Call Index; HSI 5% OTM Covered Call Index; HSCEI Covered Call Index; and HSCEI 5% OTM Covered Call Index.
Writing call options at different strike levels would result in different levels of downside protection and upside limitation on the returns from the portfolio. The four indexes cover two different strike levels: at-the-money and 5 per cent out-of-the-money.
Vincent Kwan, Chief Executive Officer, Hang Seng Indexes Company Limited, says: “The launch of these covered call indexes adds new type of index to enrich our index family. These indexes replicate an investment strategy with a long position in the HSI or the HSCEI and a short position in the call options of the underlying index. The new indexes provide a reference for investors who are looking for downside protection and enhanced returns under certain market conditions.”
Also launched today was the Hang Seng Stock Connect Greater Bay Area High Dividend Yield Index. It is a cross-market index that is categorised as a Factor & Strategy index. This latest addition to the Hang Seng Stock Connect Greater Bay Area Index Series aims to reflect the overall performance of companies operating in the Guangdong-Hong Kong-Macao Greater Bay Area that offer high dividend yields. With this new addition, the number of indexes in the Hang Seng Stock Connect Greater Bay Area Index Series has increased to 20.
The covered call indexes are calculated and disseminated in real-time at 15-second intervals, and the Hang Seng Stock Connect Greater Bay Area High Dividend Yield Index is calculated and disseminated in real-time at two-second intervals. More details about these new indexes are provided in accompanying appendices.
