Callable Bull/Bear Contract (CBBC) are structured products that track the performance of the underlying asset. Investors can pay a fraction of the cost of holding the underlying asset to take a bearish or bullish position on the underlying asset. As a callable Bull/Bear Contract has a call level and a mandatory call feature, investors should exercise special attention when trading the product, especially when the underlying price is close to the call level.

### Naming Convention

Take BTC-20DEC-14550C-A as an example:

BTC: characters before the first dash represents the underlying asset it tracks. In this example, the underlying asset is the BTC/USDT spot index.

20DEC : represents the year and month of expiry, “December 2020’ in this example.

14550C: the numbers represent the strike price and the symbol represents whether it is a callable bull contract or a callable bear contract, “ C “for a bull contract and “P” for a bear contract. In this example, the strike price is 14550 USDT and it is a callable bull contract.

A: identifier of the CBBCs as the issuer may have issued several CBBCs with the same expiry month but different terms (such as different strike prices).

### Terminologies and Calculations

Strike Price: Also called Exercise Price. It is the price used to determine the residual value of a CBBC. If the underlying asset price is above the strike price for a callable bull contract, or below the strike price for a callable bear contract, the CBBC has residual value.

Call Price: When the underlying price hits the call price of the CBBC, the CBBC must be called and trading is terminated immediately. The investor will receive a residual value, if there is any.

The Last Trading Time: if a CBBC is held until maturity, it will be called by the issuer at a specific time (16:00 Hong Kong time in general) of the day.

Entitlement Ratio: represents the CBBC's exposure to the underlying asset. If this ratio is 10000, you need to have 10000 CBBCs to have1-to-1 exposure to the underlying asset.

Break-even point: Point at which total cost and total revenue are equal.

For a callable contract, break-even point is: Strike Price+ the CBBC Price X Entitlement Ratio

For a callable bear contract, break-even point is: Strike Price- the CBBC Price X Entitlement Ratio

Gearing Ratio :The gearing effect of a CBBC. It represents how much a CBBC may rise or fall when the underlying asset price changes by 1%. The higher the gearing ratio, the higher the potential profit the CBBC can enable, as well as loss.

Formula: Gearing Ratio= underlying asset price/( the CBBC PriceX Entitlement Ratio)

Spot Price vs Call Level %

The distance (percentage difference) between underlying asset price and the CBBC’s call price.

Formula: Spot Price vs Call Level %=ABS（Underlying Asset Price-Call Price）/Call Price×100%

Outstanding CBBC %:The ratio of CBBC s held by retail investors to the total CBBCs being issued.

### CBBC Pricing

In theory, the pricing of a CBBC has two components, intrinsic value and the funding cost that the issuer charges on investors to cover the financial cost to create the CBBC.

Intrinsic value of a callable bull contract=(Underlying Asset Price – Strike Price)/ Entitlement Ratio

Intrinsic value of a callable bear contract=(Strike Price -Underlying Asset Price)/ Entitlement Ratio

Funding Cost: the issuer’s financing cost to create the CBBC. The funding cost is built into the CBBC’s price at launch, tending to decrease gradually as the CBBC is approaching maturity.

Formula:

Funding Cost: Strike Price/Entitlement Ratio X annualized funding rate X days until expiry/365

The annualized funding rate is generally 7.3%, which may change as lending interest rate changes.

Premium: The premium can act as the actual value of the funding costs of the CBBCs charged by the issuer.

Formula:

For a callable bull contract: Premium（%）＝(the CBBC Price X Entitlement Ratio + Strike Price-Underlying Asset Price)/Underlying Asset Price×100％

For a callable bull contract : Premium（%）＝(the CBBC Price X Entitlement Ratio - Strike Price+Underlying Asset Price)/Underlying Asset Price×100％

### Mandatory Call Event (MCE)

When the underlying asset price hits the CBBC’s call level, the CBBC must be called and trading terminated immediately. Even if the price would bounce back later, the CBBC could not be traded.

Observation Period:

When a CBBC is triggered, it will enter into an observation period (4 hours in general). During this period of time, the lowest underlying price (for a callable bull contract) or the highest underlying price (for a callable bear contract) recorded will be used as settlement price in the calculation of residual value of the CBBC.

Residual Value: The residual value is what the CBBC is worth after it is called.

If the strike price is below the settlement price for a callable contract or the strike price above the settlement price for a callable bear contract, the CBBC has residual value. Otherwise it has zero value.

Formula:

For a callable bull contract: Residual Value=(Settlement Price-Strike Price)/Entitlement Ratio

For a callable bear contract: Residual Value=(Strike Price-Settlement Price)/Entitlement Ratio

Settlement Price:

1. If a CBBC is called and expires early, the settlement price is the lowest (for a callable bull contract) or the highest (for a callable bear contract) underlying price recorded during the observation period.

2. If a CBBC is held until maturity, the settlement price is the average of 1-minute average underlying asset price of the last 10 minutes before the closing of the trading session.

### Settlement upon maturity:

If a CBBC is held until maturity, the investor will receive a settlement amount.

For a callable bull contract, the settlement value=(Settlement Price-Strike Price)/Entitlement Ratio

For a callable bear contract, the settlement value= (Strike Price-Strike Price-)/Entitlement Ratio

### Trading Fee:

At Gate.io, the trading fees charged in the CBBC trading are the same with spot trading. The VIP discount in spot trading applies to the CBBC market as well. Currently, we do not support GT debit. However, you can use Gate.io Point to cover your CBBC trading fee to effectively lower your fee expenses.