Monday morning, HSBC Securities Department.
"What a pity, what a pity!"
Listening to Yuan TianFan's report, Shen Zhou shook his head regretfully.
Just now, Yuan had reported that after the market opened, a flood of Hutchison Whampoa put warrants appeared. They quickly absorbed all the call warrants in the market, while more puts continued to be placed and gradually taken up by calls.
As of last Friday's close, Hutchison Whampoa's share price was HK$6.58, with a market capitalization of HK$2.632 billion.
But the puts appearing this morning had a strike price of HK$6 — nearly 9% below the current price. In other words, anyone buying these puts, facing counterparties who believed the stock would rise, would not lose money unless the price fell below HK$6. There was already a 9% safety margin.
The puts had a 30‑day maturity. If Hutchison's price stayed above HK$6 during that period, the call buyers would not lose. After 30 days, any further decline would no longer matter to that option.
Because of this 9% cushion, despite the large number of puts, institutions and individuals still bought them. Within a short time, turnover exceeded HK$100 million — extremely rare.
After all, this was the options market for a single stock, not the entire Hong Kong market.
Shen Zhou felt regret because HSBC could not buy those puts itself to take the other side and profit.
He didn't yet know why so much capital was shorting Hutchison, and why they chose options instead of margin shorting through brokers. But he did know Hutchison's gold futures investment via HSBC financing had made huge profits.
That meant once the news was disclosed, Hutchison's stock would soar. So anyone taking the other side of the puts was guaranteed profit.
HSBC, however, could not participate. As the issuer of Hutchison's warrants, HSBC was only the third‑party intermediary, collecting fees from both sides. It could not trade itself.
No matter how the stock moved, HSBC earned its option fees — risk‑free profit. But each fee was small, and normal volumes were low. Compared to the huge gains possible from taking the short side, HSBC's earnings seemed meager. Hence Shen Zhou's regret.
But regret aside, HSBC could only watch.
Yuan TianFan said: "It is a pity. But while we can't profit from options, we can profit from the stock market."
"You're right," Shen Zhou agreed. "How many Hutchison shares have we bought so far?"
"Since Mr. Lin took control, Hutchison's daily turnover has been heavy, with many shares sold and the price falling. We've bought smoothly — about 14 million shares now," Yuan replied.
HSBC had begun buying when gold fell to around USD 185 per ounce, knowing Hutchison had flipped its futures position and made big money. Seeing the stock below HK$7, they kept buying.
Yet despite HSBC's purchases, the price kept falling — showing how little confidence other holders had in Hutchison's future.
Lin BaoCheng himself, after taking control, had ordered An Yuan to keep buying below HK$7. He acquired 11.9% more, bringing his stake to 49.9% — nearly half. If not for Hong Kong's ownership limits, he would have bought more.
Even with Lin and HSBC together holding over 15% of the company, the price still fell to HK$6.58. Without their support, it would have dropped even further.
"Keep buying until we reach 5%," Shen Zhou ordered. But beyond that, they would need to consult Lin.
If HSBC bought too much, Lin would realize they knew about Hutchison's gold profits. He might grow suspicious. To keep such a major client, HSBC had to tread carefully.
"Yes, sir," Yuan nodded.
Shen Zhou added: "Have someone investigate who is shorting heavily. If we can find out, good. If not, leave it. It's not our concern."
"Understood."
"One more thing — the details of Hutchison's gold futures investment must remain secret. Even if other executives or directors ask, you must not reveal it. This concerns the bank's reputation."
Shen Zhou reminded him firmly. Though he had already warned staff before, the surge of shorting made him worry people might probe. If word leaked from HSBC, its reputation would suffer greatly.
"Rest assured, sir. I keep the confidentiality rules in mind always," Yuan said seriously. His career and heavy penalties depended on it.
"Good," Shen Zhou nodded, resolving to remind others again of the importance of secrecy.
That day, Hutchison's options market saw huge turnover. Meanwhile, at the request of several directors, Hutchison convened an emergency board meeting. Since Lin BaoCheng had left Hong Kong, he had his sister Lin ShuFang attend on his behalf, guided by Cheng YuFeng.
In past meetings, decisions aligned with Lin's strategy. Lin ShuFang only needed to vote as advised by Cheng YuFeng — simple enough.