Time to short Hong Kong stocks? These strategies can be considered

In the past week, the Hong Kong stock market has experienced dramatic waves. At the beginning of the week,$Hang Seng Index (HSI) $It once approached the 25,000-point mark under the optimistic scenario, and then the market sentiment reversed and the index went sharply pullback/retracement. The Hang Seng Technology Index fell by more than 3% for two consecutive trading days on Thursday and Friday, with a cumulative decline of 4.1% last week, while the Hang Seng Index, Hang Seng State-owned Enterprises and MSCI China Index fell by 1.1%, 1.5% and 1.7% respectively, all for two consecutive trading days. Showing a downward trend. In terms of industries, electronics services (-10.4%) and real estate (-7.5%) led the decline, while utilities (+2.1%) and energy (+0.9%) bucked the trend and rose, reflecting uneven differentiation within the market.

Despite this, since the Spring Festival holiday (February 3), the Hang Seng Index and Hang Seng Technology have risen by 17.1% and 19.4% respectively, far exceeding the A-share market (the Shanghai Stock Exchange Index and the GEM only rose by 3.5% and 4.3% during the same period). This ostensibly strong rise at the index level actually hides the characteristics of the "structured market" behind it: the rise is mainly driven by a small number of leading AI technology stocks. Among the 425 Hong Kong Stock Connect targets, only 27.8% of individual stocks outperformed the index; Among the 83 constituent stocks of the Hang Seng Index, only 26.5% outperformed the index. This phenomenon reveals the following key points:

1. The weight effect is significant: The sharp rise in the overall Hong Kong stock index largely relies on the strong performance of a few leading technology stocks. These 17 stocks, which belong to both the Hang Seng Index and the Hang Seng Technology component, only account for 20.5 of the total constituent stocks, but their weight is close to 40%, while the remaining 60% of stocks are mainly traditional old economic sectors.

2. Inter-plate difference: Part of the reason why Hong Kong stocks outperformed A-shares is that leading stocks are not common in the A-share market. For example, although the A-share artificial intelligence sector performed well (up +14.7% after the Spring Festival), its weight in the Shanghai Stock Exchange Index was only 2.3%.

3. Funding direction: During the period of sharp market surge, some active investors faced redemption pressure, while the capital inflow of Hong Kong stock ETFs was rapid and hit a new monthly net inflow high, showing that the influence of passive investment products in the current market is increasing day by day.

The current risk premium of the Hang Seng Index is 6.0%, which is similar to the market sentiment during the "924" event last year and the high point in early 2023, and the corresponding index level is roughly between 23,000 and 24,000 points. If it is assumed that the technology segment (accounting for about 40%) falls to Hengke's all-time high sentiment level in 2021, while the other 60% remains unchanged, it may push the Hang Seng Index to 25,000 points.

The logic and motivation of short-selling strategies

Against the above market background, the market trend shows highly differentiated and structural characteristics. On the one hand, a small number of leading technology stocks excessively boosted the overall index; On the other hand, the performance of traditional segments is relatively weak, and the overall risk premium of Hong Kong stocks is relatively high, and the market sentiment is obviously volatile. It is in this "structured market" that the implementation of short-selling strategies through option instruments can capture downward opportunities in traditional sectors and overall corrections of indexes, while avoiding some systemic risks.

The option strategy has the following advantages over direct short selling of stocks:

• Limited risk: By buying put options, investors can limit their maximum losses and only pay the option premium without having to worry about unlimited loss risks.

• Leverage effect: Futures options can leverage larger market positions with smaller capital investment and amplify income opportunities.

• High agility: Investors can choose unilateral bearish, spread combination, and even straddle strategies to deal with different volatile scenarios according to different market expectations.

Option short selling strategy

In view of the current volatility and structural characteristics of the Hong Kong stock market, the following are several common option short-selling strategies:

1. Direct purchase of put options

   1. Strategy Explanation: Investors buy put options on Hong Kong stock indexes or individual stocks, expecting to obtain returns when the market pulls back.

   2. Advantages: Risk control is clear, and the maximum loss is limited to the option premium paid; No need to worry about borrowing or deposit issues.

   3. Implementation points: Select the appropriate execution price and expiration date to ensure that the option fee is reasonable, and at the same time pay attention to changes in the hidden volatility rate to prevent the volatility rate from rebounding and causing the option value to decline.

2. Put Option Spread Combination

   1. Strategy Explanation: Buy and sell put options with different execution prices at the same time to construct a spread portfolio. This strategy can reduce costs while locking in some revenue.

   2. Advantages: By selling put options with higher strike prices, the cost of buying options can be partially offset, thereby improving the efficiency of capital use.

   3. Implementation points: It is necessary to accurately grasp the extent of market corrections to avoid poor portfolio returns due to too large or too small market adjustments.

3. Straddle or wide-straddle strategy

   1. Strategy Explanation: When the market volatility rises sharply and the direction is uncertain, investors can buy both put and bullish options at the same time to capture the benefits brought by the large volatility.

   2. Advantages: No matter whether the market fluctuates sharply upward or downward, there is an opportunity to make profits.

   3. Implementation points: Higher option costs require investors to accurately judge volatility expectations and at the same time control positions to prevent volatility risk from spreading.

CONCLUSION

In the context of structural differentiation and increasing volatility in the Hong Kong stock market, short-selling strategies, especially short-selling through option tools, provide a risk-controlled, flexible and efficient operation method. Although the market is likely to rebound in the short term, the weakness of traditional segments and the regression of market risk premiums provide clear logical support for shorting options.