Moving Averages - Simple and Exponential [ChartSchool]
Table of Contents
Moving Averages - Simple and Exponential
Introduction
Moving averages smooth the price data to form a trend following indicator. They do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices. Despite this lag, moving averages help smooth price action and filter out the noise. They also form the building blocks for many other technical indicators and overlays, such as ,
and . The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). These moving averages can be used to identify the direction of the trend or define potential support and resistance levels.
Here's a chart with both an SMA and an EMA on it:
Click the chart for a live version
Simple Moving Average Calculation
A simple moving average is formed by computing the average price of a security over a specific number of periods. Most moving averages are based on closing prices. A 5-day simple moving average is the five day sum of closing prices divided by five. As its name implies, a moving average is an average that moves. Old data is dropped as new data comes available. This causes the average to move along the time scale. Below is an example of a 5-day moving average evolving over three days.
Daily Closing Prices: 11,12,13,14,15,16,17
First day of 5-day SMA: (11 + 12 + 13 + 14 + 15) / 5 = 13
Second day of 5-day SMA: (12 + 13 + 14 + 15 + 16) / 5 = 14
Third day of 5-day SMA: (13 + 14 + 15 + 16 + 17) / 5 = 15
The first day of the moving average simply covers the last five days. The second day of the moving average drops the first data point (11) and adds the new data point (16). The third day of the moving average continues by dropping the first data point (12) and adding the new data point (17). In the example above, prices gradually increase from 11 to 17 over a total of seven days. Notice that the moving average also rises from 13 to 15 over a three day calculation period. Also notice that each moving average value is just below the last price. For example, the moving average for day one equals 13 and the last price is 15. Prices the prior four days were lower and this causes the moving average to lag.
Exponential Moving Average Calculation
Exponential moving averages reduce the lag by applying more weight to recent prices. The weighting applied to the most recent price depends on the number of periods in the moving average. There are three steps to calculating an exponential moving average. First, calculate the simple moving average. An exponential moving average (EMA) has to start somewhere so a simple moving average is used as the previous period's EMA in the first calculation. Second, calculate the weighting multiplier. Third, calculate the exponential moving average. The formula below is for a 10-day EMA.
SMA: 10 period sum / 10
Multiplier: (2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.%)
EMA: {Close - EMA(previous day)} x multiplier + EMA(previous day).
A 10-period exponential moving average applies an 18.18% weighting to the most recent price. A 10-period EMA can also be called an 18.18% EMA. A 20-period EMA applies a 9.52% weighing to the most recent price (2/(20+1) = .0952). Notice that the weighting for the shorter time period is more than the weighting for the longer time period. In fact, the weighting drops by half every time the moving average period doubles.
If you want to us a specific percentage for an EMA, you can use this formula to convert it to time periods and then enter that value as the EMA's parameter:
Time Period = (2 / Percentage) - 1
3% Example:
Time Period = (2 / 0.03) - 1 = 65.67 time periods
Below is a spreadsheet example of a 10-day simple moving average and a 10-day exponential moving average for Intel. Simple moving averages are straight forward and require little explanation. The 10-day average simply moves as new prices become available and old prices drop off. The exponential moving average starts with the simple moving average value (22.22) in the first calculation. After the first calculation, the normal formula takes over. Because an EMA begins with a simple moving average, its true value will not be realized until 20 or so periods later. In other words, the value on the excel spreadsheet may differ from the chart value because of the short look-back period. This spreadsheet only goes back 30 periods, which means the affect of the simple moving average has had 20 periods to dissipate. StockCharts goes back at least 250-periods (typically much further) for its calculations so the effects of the simple moving average in the first calculation have fully dissipated.
The Lag Factor
The longer the moving average, the more the lag. A 10-day exponential moving average will hug prices quite closely and turn shortly after prices turn. Short moving averages are like speed boats - nimble and quick to change. In contrast, a 100-day moving average contains lots of past data that slows it down. Longer moving averages are like ocean tankers - lethargic and slow to change. It takes a larger and longer price movement for a 100-day moving average to change course.
Click on the chart for a live version.
The chart above shows the S&P 500 ETF with a 10-day EMA closely following prices and a 100-day SMA grinding higher. Even with the January-February decline, the 100-day SMA held the course and did not turn down.
The 50-day SMA fits somewhere between the 10 and 100 day moving averages when it comes to the lag factor.
Simple vs Exponential Moving Averages
Even though there are clear differences between simple moving averages and exponential moving averages, one is not necessarily better than the other. Exponential moving averages have less lag and are therefore more sensitive to recent prices - and recent price changes. Exponential moving averages will turn before simple moving averages. Simple moving averages, on the other hand, represent a true average of prices for the entire time period. As such, simple moving averages may be better suited to identify
Moving average preference depends on objectives, analytical style and time horizon. Chartists should experiment with both types of moving averages as well as different timeframes to find the best fit. The chart below shows IBM with the 50-day SMA in red and the 50-day EMA in green. Both peaked in late January, but the decline in the EMA was sharper than the decline in the SMA. The EMA turned up in mid February, but the SMA continued lower until the end of March. Notice that the SMA turned up over a month after the EMA.
The length of the moving average depends on the analytical objectives. Short moving averages (5-20 periods) are best suited for short-term trends and trading. Chartists interested in medium-term trends would opt for longer moving averages that might extend 20-60 periods. Long-term investors will prefer moving averages with 100 or more periods.
Some moving average lengths are more popular than others. The 200-day moving average is perhaps the most popular. Because of its length, this is clearly a long-term moving average. Next, the 50-day moving average is quite popular for the medium-term trend. Many chartists use the 50-day and 200-day moving averages together. Short-term, a 10-day moving average was quite popular in the past because it was easy to calculate. One simply added the numbers and moved the decimal point.
Trend Identification
The same signals can be generated using simple or exponential moving averages. As noted above, the preference depends on each individual. These examples below will use both simple and exponential moving averages. The term “moving average” applies to both simple and exponential moving averages.
The direction of the moving average conveys important information about prices. A rising moving average shows that prices are generally increasing. A falling moving average indicates that prices, on average, are falling. A rising long-term moving average reflects a long-term uptrend. A falling long-term moving average reflects a long-term downtrend.
The chart above shows 3M (MMM) with a 150-day exponential moving average. This example shows just how well moving averages work when the trend is strong. The 150-day EMA turned down in November 2007 and again in January 2008. Notice that it took a 15% decline to reverse the direction of this moving average. These lagging indicators identify trend reversals as they occur (at best) or after they occur (at worst). MMM continued lower into March 2009 and then surged 40-50%. Notice that the 150-day EMA did not turn up until after this surge. Once it did, however, MMM continued higher the next 12 months. Moving averages work brilliantly in strong trends.
Double Crossovers
Two moving averages can be used together to generate crossover signals. In , John Murphy calls this the “double crossover method”.
Double crossovers involve one relatively short moving average and one relatively long moving average. As with all moving averages, the general length of the moving average defines the timeframe for the system. A system using a 5-day EMA and 35-day EMA would be deemed short-term. A system using a 50-day SMA and 200-day SMA would be deemed medium-term, perhaps even long-term.
A bullish crossover occurs when the shorter moving average crosses above the longer moving average. This is also known as a golden cross. A bearish crossover occurs when the shorter moving average crosses below the longer moving average. This is known as a dead cross.
Moving average crossovers produce relatively late signals. After all, the system employs two lagging indicators. The longer the moving average periods, the greater the lag in the signals. These signals work great when a good trend takes hold. However, a moving average crossover system will produce lots of whipsaws in the absence of a strong trend.
There is also a triple crossover method that involves three moving averages. Again, a signal is generated when the shortest moving average crosses the two longer moving averages. A simple triple crossover system might involve 5-day, 10-day and 20-day moving averages.
The chart above shows Home Depot (HD) with a 10-day EMA (green dotted line) and 50-day EMA (red line). The black line is the daily close. Using a moving average crossover would have resulted in three whipsaws before catching a good trade. The 10-day EMA broke below the 50-day EMA in late October (1), but this did not last long as the 10-day moved back above in mid November (2). This cross lasted longer, but the next bearish crossover in January (3) occurred near late November price levels, resulting in another whipsaw. This bearish cross did not last long as the 10-day EMA moved back above the 50-day a few days later (4). After three bad signals, the fourth signal foreshadowed a strong move as the stock advanced over 20%.
There are two takeaways here. First, crossovers are prone to whipsaw. A price or time filter can be applied to help prevent whipsaws. Traders might require the crossover to last 3 days before acting or require the 10-day EMA to move above/below the 50-day EMA by a certain amount before acting. Second,
can be used to identify and quantify these crossovers. MACD (10,50,1) will show a line representing the difference between the two exponential moving averages. MACD turns positive during a golden cross and negative during a dead cross. The Percentage Price Oscillator (PPO) can be used the same way to show percentage differences. Note that MACD and the PPO are based on exponential moving averages and will not match up with simple moving averages.
This chart shows Oracle (ORCL) with the 50-day EMA, 200-day EMA and MACD(50,200,1). There were four moving average crossovers over a 2 1/2 year period. The first three resulted in whipsaws or bad trades. A sustained trend began with the fourth crossover as ORCL advanced to the mid 20s. Once again, moving average crossovers work great when the trend is strong, but produce losses in the absence of a trend.
Price Crossovers
Moving averages can also be used to generate signals with simple price crossovers. A bullish signal is generated when prices move above the moving average. A bearish signal is generated when prices move below the moving average. Price crossovers can be combined to trade within the bigger trend. The longer moving average sets the tone for the bigger trend and the shorter moving average is used to generate the signals. One would look for bullish price crosses only when prices are already above the longer moving average. This would be trading in harmony with the bigger trend. For example, if price is above the 200-day moving average, chartists would only focus on signals when price moves above the 50-day moving average. Obviously, a move below the 50-day moving average would precede such a signal, but such bearish crosses would be ignored because the bigger trend is up. A bearish cross would simply suggest a pullback within a bigger uptrend. A cross back above the 50-day moving average would signal an upturn in prices and continuation of the bigger uptrend.
The next chart shows Emerson Electric (EMR) with the 50-day EMA and 200-day EMA. The stock moved above and held above the 200-day moving average in August. There were dips below the 50-day EMA in early November and again in early February. Prices quickly moved back above the 50-day EMA to provide bullish signals (green arrows) in harmony with the bigger uptrend. MACD(1,50,1) is shown in the indicator window to confirm price crosses above or below the 50-day EMA. The 1-day EMA equals the closing price. MACD(1,50,1) is positive when the close is above the 50-day EMA and negative when the close is below the 50-day EMA.
Support and Resistance
Moving averages can also act as
in an uptrend and
in a downtrend. A short-term uptrend might find support near the 20-day simple moving average, which is also used in Bollinger Bands. A long-term uptrend might find support near the 200-day simple moving average, which is the most popular long-term moving average. If fact, the 200-day moving average may offer support or resistance simply because it is so widely used. It is almost like a self-fulfilling prophecy.
The chart above shows the NY Composite with the 200-day simple moving average from mid 2004 until the end of 2008. The 200-day provided support numerous times during the advance. Once the trend reversed with a double top support break, the 200-day moving average acted as resistance around 9500.
Do not expect exact support and resistance levels from moving averages, especially longer moving averages. Markets are driven by emotion, which makes them prone to overshoots. Instead of exact levels, moving averages can be used to identify support or resistance zones.
Conclusions
The advantages of using moving averages need to be weighed against the disadvantages. Moving averages are trend following, or lagging, indicators that will always be a step behind. This is not necessarily a bad thing though. After all, the trend is your friend and it is best to trade in the direction of the trend. Moving averages insure that a trader is in line with the current trend. Even though the trend is your friend, securities spend a great deal of time in trading ranges, which render moving averages ineffective. Once in a trend, moving averages will keep you in, but also give late signals. Don't expect to sell at the top and buy at the bottom using moving averages. As with most technical analysis tools, moving averages should not be used on their own, but in conjunction with other complementary tools. Chartists can use moving averages to define the overall trend and then use RSI to define
Adding Moving Averages to StockCharts Charts
Moving averages are available as a price overlay feature on . Using the Overlays drop-down menu, users can choose either a simple moving average or an exponential moving average. The first parameter is used to set the number of time periods.
An optional parameter can be added to specify which price field should be used in the calculations - “O” for the Open, “H” for the High, “L” for the Low, and “C” for the Close. A comma is used to separate parameters.
Another optional parameter can be added to shift the moving averages to the left (past) or right (future). A negative number (-10) would shift the moving average to the left 10 periods. A positive number (10) would shift the moving average to the right 10 periods.
Multiple moving averages can be overlaid the price plot by simply adding another overlay line to the workbench. StockCharts members can change the colors and style to differentiate between multiple moving averages. After selecting an indicator, open “Advanced Options” by clicking the little green triangle.
“Advanced Options” can also be used to add a moving average overlay to other technical indicators like RSI, CCI, and Volume.
for a live chart with several different moving averages.
Using Moving Averages with StockCharts Scans
Here are some sample scans that StockCharts members can use to scan for various moving average situations:
This scans looks for stocks with a rising 150-day simple moving average and a bullish cross of the 5-day EMA and 35-day EMA. The 150-day moving average is rising as long as it is trading above its level five days ago. A bullish cross occurs when the 5-day EMA moves above the 35-day EMA on above average volume.
This scans looks for stocks with a falling 150-day simple moving average and a bearish cross of the 5-day EMA and 35-day EMA. The 150-day moving average is falling as long as it is trading below its level five days ago. A bearish cross occurs when the 5-day EMA moves below the 35-day EMA on above average volume.
Further Study
John Murphy's book has a chapter devoted to moving averages and their various uses. Murphy covers the pros and cons of moving averages. In addition, Murphy shows how moving averages work with Bollinger Bands and channel based trading systems.
Technical Analysis of the Financial Markets
John Murphy
Stocks & Commodities Magazine Articles:
May 1993 - Stocks & Commodities V. 11:6 (257-260)
Mar 1998 - Stocks & CommoditiesHKEx News Release
Adjustment of CKHH- and Hutchison-related Structured Products, Futures and Options
Hong Kong Exchanges and Clearing Limited (HKEx) has announced arrangements for adjustments to structured products, futures and options related to CK Hutchison Holdings Limited (CKHH) and Hutchison Whampoa Limited (Hutchison) to account for their proposed merger and CKHH’s proposed spin-off of Cheung Kong Property Holdings Limited (CK Property).
Highlights of the adjustment arrangements are set forth below.
Investors should consult their brokers for further details, or if they have any questions regarding the adjustments.
Structured Products with Shares of CKHH and Hutchison as Underlying Assets
The listing documents for structured products with the shares of Hutchison as underlying assets contain provisions that deal with the merger of the company.
Upon completion of their merger proposal, CKHH shares will replace Hutchison shares as the underlying shares of all existing Hutchison shares-related structured products.
Other terms, including entitlement, exercise price and call price, will also be adjusted.
The listing documents for structured products with the shares of CKHH as underlying assets contain provisions that deal with corporate actions of the company, including spin-offs.
For the spin-off of CK Property, terms of CKHH structured products, including entitlement, exercise price and call price, will be adjusted on the day following the listing of CK Property.
Trading of structured products with shares of CKHH and Hutchison as underlying assets will be suspended from 27 May to 3 June (both date inclusive).
During the suspension period, there will not be any Mandatory Call Events for Callable Bull/Bear Contracts, or CBBCs, linked to CKHH or Hutchison.
Structured product issuers are required to make announcements regarding the above adjustments and trading suspensions, and investors should read the contents of such announcements carefully.
CKHH and Hutchison Futures
Proposed CKHH-Hutchison Merger
Subject to the fulfilment of the conditions precedent to the proposed CKHH Hutchison merger, the following adjustments to Hutchison stock futures contracts will be made on the effective date based on the corporate action announced:
Underlying Stock Name of the Stock Futures Contracts (Stock Code)
Hutchison Whampoa Limited (13)
Corporate Action
1 Hutchison Share in exchange for 0.684 CKHH Share
Last Day for Dealing of Hutchison Shares
26 May 2015
Effective Date of Corporate Action
3 June 2015
For details, please refer to the
made by Hutchison.
Trading Arrangements
The trading arrangements for the existing Hutchison stock futures under trading symbol HWL will be as follows:
Suspension of Trading In view of the closure of the register of member of Hutchison for determining the entitlements to CKHH shares from 29 May 2015 onwards and the commencement of dealings in CKHH shares newly issued to certain Hutchison shareholders, trading of Hutchison stock futures under trading symbol HWL will be suspended from 27 May 2015 to 2 June 2015, both days inclusive.
Adjustment and Transfer of Outstanding Positions Outstanding positions of Hutchison stock futures contracts under trading symbol HWL which exist after the market close on 2 June 2015 (the business day immediately before the effective date) will be adjusted and transferred to the adjusted CKHH stock futures contracts under trading symbol CKF.
Details of the adjustment procedures are as follows:
Adjustment Ratio (AR)
1 / 0.684 = 1.4620
Rounded to the nearest 4 decimal places
Adjusted Contracted Price (ACP)
Contracted price of outstanding stock futures series x AR
Rounded to the nearest 2 decimal places
Adjusted Contract Multiplier (ACM)
Contracted price of outstanding stock futures series x (1,000 shares / ACP)
Rounded to the nearest 4 decimal places
Hutchison stock futures contracts will not be available for trading from the effective date onwards.
Adjusted CKHH stock futures contracts under trading symbol CKF will follow the spin-off arrangements stated below.
Clearing and Settlement Arrangements
Final Settlement of Spot-Month Stock Futures Contracts On 28 May 2015, the spot month HWL stock futures contracts will be cash-settled based on the final settlement price as determined by the Futures Exchange, which shall be the average of readings of: (i) the midpoints of the best bid and best ask prices for the underlying common share taken at five-minute intervals from five minutes after the start of, and up to five minutes before the end of the Stock Exchange’s Continuous Trading Session, which runs from 9:30 am to 4:00 pm ; and (ii) the closing price of the underlying common share as quoted by the Stock Exchange on 26 May 2015 (the last day for dealing of Hutchison shares).
Spin-off Proposal
Subject to the fulfilment of the conditions precedent to CKHH’s proposed spin-off of CK Property, the following adjustment to the CKHH stock futures contracts will be made on the ex-date:
Underlying Stock Name of the Stock Futures Contracts (Stock Code)
CK Hutchison Holdings Limited (1)
Corporate Action
Spin-off and separate listing of CK Property on the Stock Exchange by way of a 100 per cent distribution in specie (Entitlement)
Entitlement Ratio
(1 CK Property share for every 1 CKHH share)
27 May 2015
Listing Day of CK Property
3 June 2015
For details, please refer to the
made by CKHH.
Trading Arrangements
Transfer of Outstanding Positions Outstanding positions of CKHH stock futures under trading symbols CKH and CKB which exist after the market close on 26 May 2015 (the business day immediately before the ex-date) will be transferred on a one-to-one basis to temporary trading symbols CKD and CKE respectively.
Suspension of Trading Since the value of the Entitlement will not be available until the value of CK Property is determined, trading of outstanding positions under temporary trading symbols CKD and CKE will be suspended from the ex-date (27 May 2015) to the listing day of CK Property (3 June 2015), both dates inclusive. For the adjusted CKHH stock futures contracts under trading symbol CKF resulting from the adjustment for the proposed CKHH-Hutchison merger, trading will be suspended on 3 June 2015.
Introduction of New Stock Futures Contracts for Trading On the ex-date, new CKHH stock futures contracts based on the standard contract multiplier will be introduced for trading under the standard trading symbol CKH.
Adjustment to Outstanding Positions upon the Determination of CK Property’s Value The value of CK Property will be determined by the volume weighted average price, or VWAP, of the auto-matched trades of CK Property on its listing day.
When the value of the Entitlement has been determined, adjustment will be made to outstanding positions under trading symbols CKD, CKE and CKF.
The adjusted positions will be transferred to trading symbols CKG, CKJ and CKK respectively.
Positions under trading symbols CKG, CKJ and CKK will commence trading from the business day immediately after the listing day of CK Property.
Details of the adjustment procedures are as follows:
Adjustment Ratio (AR)
(Underlying stock closing price before ex-date minus Entitlement) / Underlying stock closing price before ex-date
Rounded to the nearest 4 decimal places
Adjusted Contracted Price (ACP)
Contracted price of outstanding stock futures series x AR
Rounded to the nearest 2 decimal places
Adjusted Contract Multiplier (ACM)
Contracted price of outstanding stock futures series x (No of shares / ACP)
Rounded to the nearest 4 decimal places
Note: Entitlement is CK Property’s value times the Entitlement Ratio for each CKHH share.
Below is a summary of the trading arrangements for all CKHH stock futures contracts:
(ex-Entitlement)
From ex-date onwards
CKH H & Entitlement
ACM Note 1
Effective day of the Hutchison Scheme
(ex-Entitlement)
ACM Note 2
The 1st business day after the listing day of CK Property
From introduction date to
30 December 2015
From introduction date to
29 September 2015
From introduction date to
30 December 2015
Note 1: ACM is determined under the proposed CKHH-Hutchison merger.
Note 2: ACM is determined under the spin-off proposal.
Clearing and Settlement Arrangements
Final Settlement of Spot Month Stock Futures Contracts On 28 May 2015, the final settlement of the spot month CKHH stock futures contracts will be effected according to normal procedures. As the value of the Entitlement is not available until the value of CK Property is determined, the CKD and CKE spot month stock futures contracts will first be settled according to the settlement price1 as determined by HKEx’s clearing house for futures and stock index options on 28 May 2015.
Final settlement of the CKD and CKE spot month stock futures contracts will be made on 4 June 2015 after the CK Property’s value is determined2.
For detailed trading and clearing operations arrangements, please refer to the .
CKHH and Hutchison Options
Proposed CKHH-Hutchison Merger
Subject to the fulfilment of the conditions precedent to the proposed CKHH-Hutchison merger, the following adjustments to Hutchison stock option will be made on the effective date based on the corporate action announced:
Underlying Stock Name of the Stock Futures Contracts (Stock Code)
Hutchison Whampoa Limited (13)
Corporate Action
1 Hutchison Share in exchange for 0.684 CKHH Share
Last Day for Dealing of Hutchison Shares
26 May 2015
Effective Date of Corporate Action
3 June 2015
For details, please refer to the
made by Hutchison.
Trading Arrangements
The trading arrangements for the existing Hutchison stock options under trading symbol HWL will be as follows:
Suspension of Trading and Exercise In view of the closure of the register of member of Hutchison for determining the entitlements to CKHH shares from 29 May 2015 onwards and the commencement of dealings in CKHH shares newly issued to certain Hutchison shareholders, trading of Hutchison stock options under trading symbol HWL will be suspended from 27 May 2015 to 2 June 2015, both days inclusive.
During the same period, Hutchison stock options
cannot be exercised as Hutchison shares resulting from exercise will only be delivered after the latest time (28 May 2015) for lodging transfers of shares in order to be entitled to CKHH shares.
Adjustment and Transfer of Outstanding Positions Outstanding positions of Hutchison stock options under trading symbol HWL which exist after the market close on 2 June 2015 (the business day immediately before the effective date) will be adjusted and transferred to the adjusted CKHH stock options under trading symbol CKF.
Details of the adjustment procedures are as follows:
Adjustment Ratio (AR)
1 / 0.684 = 1.4620
Rounded to the nearest 4 decimal places
Adjusted Exercise Price (AEP)
Exercise price of outstanding stock option series x AR
Rounded to the nearest 2 decimal places
Adjusted Contract Size (ACS)
Exercise price of outstanding stock
option series x (1,000 shares / AEP)
Rounded to the nearest 4 decimal places
Hutchison stock options will not be available for trading from effective date onwards. The adjusted CKHH stock options under trading symbol CKF shall follow the spin-off arrangements stated below.
Clearing and Settlement Arrangements
Arrangement for Spot Month Stock Options Contract on Expiry Day On expiry day (28 May 2015), the normal automatic exercise arrangement will not be applied for spot month HWL stock option series.
All in-the-money HWL spot month stock option series will be exercised/assigned and settled in cash according to the difference between the exercise price of the spot month stock option series and the settlement price as determined by HKEx’s clearing house for stock options3.
Spin-off Proposal
Subject to the fulfilment of the conditions precedent to CKHH’s proposed spin-off of CK Property, the following adjustment to the CKHH stock options will be made on the ex-date:
Underlying Stock Name of the Stock Option Contracts (Stock Code)
CK Hutchison Holdings Limited (1)
Corporate Action
Spin-off and separate listing of CK Property on the Stock Exchange by way of a 100 per cent distribution in specie (Entitlement)
Entitlement Ratio
(1 CK Property share for every 1 CKH share)
27 May 2015
Listing Day of CK Property
3 June 2015
For details, please refer to the
made by CKHH.
Trading Arrangements
Transfer of Outstanding Positions Outstanding positions of CKHH stock options under trading symbols CKH and CKB which exist after the market close on 26 May 2015 (the business day immediately before the ex-date) will be transferred on a one-to-one basis to temporary trading symbols CKD and CKE respectively.
Suspension of Trading Since the value of the Entitlement will not be available until the value of CK Property is determined, trading of outstanding positions under temporary trading symbols CKD and CKE will be suspended from the ex-date (27 May 2015) to the listing day of CK Property (3 June 2015), both dates inclusive. For adjusted CKHH stock options under trading symbol CKF resulting from the adjustment in relation to the proposed CKHH-Hutchison merger, trading will be suspended on 3 June 2015.
Introduction of New Stock Option Series for Trading On the ex-date, new CKHH stock option series based on the standard contract size will be introduced for trading under the standard trading symbol CKH.
Adjustment to Outstanding Positions upon the Determination of CK Property’s Value The value of CK Property will be determined by VWAP of the auto-matched trades of CK Property on its listing day.
When the value of the Entitlement has been determined, adjustment will be made to outstanding positions under trading symbols CKD, CKE and CKF.
The adjusted positions will be transferred to trading symbols CKG, CKJ and CKK respectively.
Positions under trading symbols CKG, CKJ and CKK will commence trading from the business day immediately after the listing day of CK Property.
Details of the adjustment procedures are as follows:
Adjustment Ratio (AR)
(Underlying stock closing price before ex-date minus Entitlement) / Underlying stock closing price before ex-date
Rounded to the nearest 4 decimal places
Adjusted Exercise Price (AEP)
Exercise price of outstanding stock option series x AR
Rounded to the nearest 2 decimal places
Adjusted Contract Size (ACS)
Exercise price of outstanding stock option series x (No. of shares / AEP)
Rounded to the nearest 4 decimal places
Note: Entitlement is CK Property’s value times the Entitlement Ratio for each CKHH share.
Below is a summary of the trading arrangement for all CKHH stock option contracts:
CKHH (Ex-Entitlement)
From ex-date onwards
CKHH & Entitlement
Effective day of the Hutchison Scheme
(Ex-Entitlement)
The 1st business day after the listing day of CK Property
From introduction date to 30 March 2016
Note 1: ACS is determined under the proposed CKHH-Hutchison merger.
Note 2: ACS is determined under the spin-off proposal.
Clearing and Settlement Arrangements
Arrangement for Spot Month Stock Options on Expiry Day On expiry day (28 May 2015), the normal automatic exercise arrangement will not be applied for spot month CKD and CKE stock option series.
While all other exercise and assignment arrangements of the standard CKH stock option series will be as normal, market participants should note the following settlement arrangements relating to the exercise and assignment of the CKD, CKE and CKF stock option series:
Settlement Amount: payment/receipt of the full settlement amount (according to the exercise price of the CKD, CKE and CKF stock option series) via CCASS, HKEx’s Central Clearing and Settlement S
CKHH shares portion: delivery/receipt of ex-entitlement CKHH shares via CCASS.
Results of exercise and assignment of the CKD, CKE and CKF stock option series and the resulted settlement obligation of the full settlement amount and CKHH shares portion will be shown in a DCASS report (DCASS is HKEx’s Derivatives Clearing and Settlement System); and
Entitlement portion (CK Property shares): settlement in cash according to the Entitlement Ratio and CK Property value.
The cash settlement will be pending until CK Property’s value is determined and will be settled on the first business day after the listing day of CK Property.For detailed trading and clearing operational arrangement, please refer to the .
The settlement price as determined by HKEx’s clearing house for futures and stock index options is the sum of (i) the Final Settlement Price of the CKHH (ie ex-entitlement CKHH) spot month stock futures contracts and (ii) a proxy price of CK Property (ie the closing price difference of CKHH on the ex-date and the trading day prior to the ex-date).
The value of CK Property will be determined by VWAP of the auto-matched trades of CK Property on its listing day on the Stock Exchange.
On 4 June 2015, any difference between the 28 May CK Property proxy price and the CK Property’s value determined will be debited/credited to Participants.
The settlement price for spot month HWL stock option is determined based on the methodology adopted for the determination of the Final Settlement Price of spot month HWL stock futures on the last day for dealing of Hutchison shares (26 May 2015).}