Technical analysis of hedging transactions behind Xtalpi CB by Gemini

From a technical logic and the conventions of the Hong Kong stock market, the possibility of investors engaging in hedging (Delta Hedging) is extremely high, almost a standard practice in convertible bond (CB) issuance.$XTALPI(02228.HK)
This adjustment is not just a "possibility" but an inevitable outcome in the issuance process of such financial products. Below is an in-depth technical analysis:

Hedging Mechanism: Delta Neutral Strategy (Delta Hedging)
Most buyers of convertible bonds are CB arbitrage funds (CB Arbitrageurs). Their core logic is not to bet on the company's stock price rising but to hold the bonds while shorting the underlying stock to earn interest income (zero-coupon in this case, mainly capturing volatility Alpha) and the time value of the option.
- Operation: Since CBs have call option attributes, each bond corresponds to a Delta value (i.e., the proportion of bond value change when the stock price moves by 1 HKD). To offset stock price volatility risk, institutions will simultaneously short the corresponding proportion of the underlying stock in the secondary market.
- Pressure Source: The issuance size this time is HKD 2.866 billion, with an initial conversion price of HKD 13.85. This means that when locking positions, institutions need to short tens of millions or even hundreds of millions of shares in the secondary market through stock borrowing to establish short hedging positions.
Why the "Adjustment" Appeared Recently? (Timeline Matches)
From the K-line chart you provided, the stock price started to decline after hitting a high of HKD 15.120, which closely aligns with the timeline from the announcement of the CB issuance on January 7 to its completion today (January 28):
- Pre-Hedging: Between the announcement date and the completion date, subscribing institutional investors typically gradually establish short positions through stock borrowing channels.
- Rising Short Ratio: As previous market data showed, Jingtai's short selling ratio (Short Selling Ratio) significantly increased around the announcement (reaching over 11%), a typical sign of hedging funds entering the market.
- Finalization: Today's completion of issuance means most large-scale hedging operations are likely nearing their end, but tomorrow's listing may still trigger a final wave of dynamic position adjustments.
Technical Analysis: Selling Pressure and Anchoring Effect
- Gravity of Conversion Price (13.85): The conversion price is set at HKD 13.85, a 20% premium, which technically forms a strong resistance level in the medium to long term. The stock price's decline from HKD 15 indicates that the market perceives significant potential dilution pressure and arbitrage selling pressure under the current valuation.
- Moving Average System: The MA5 (yellow line) has crossed below the MA10 (blue line), forming a death cross. This reflects that short-term momentum has weakened under the continuous pressure of hedging activities.
- Turnover and Volume: Today's turnover rate is 2.07%, with a trading volume of HKD 1.097 billion, indicating a volume-driven adjustment. In the absence of major negative news, such adjustments are often structural squeezes caused by "large-scale financing."
Conclusion and Evaluation
- Probability Assessment: Extremely high (>90%). For a zero-coupon CB of HKD 2.8 billion, no professional institution would choose to remain completely "unhedged."
- Future Trend: Once the bonds are listed on January 29 and hedging positions are fully established, the stock price often enters a period of sideways movement or gradual decline based on "stock borrowing costs" and "volatility," unless there are unexpected positive developments in AI drug R&D to offset the short pressure.

Personally, I think this technical selling is likely nearing its end. I am relatively optimistic about the future market. Both fundamentally and macro-narratively, Jingtai's prospects are quite positive. There's no reason to stagnate here.

Hodler!