Quantitative Factors and Models Summary Quantitative Factors and Construction Methods 1. **Factor Name**: Market Style Factor **Construction Idea**: This factor tracks the market's preference for small-cap versus large-cap stocks and growth versus value stocks over the observed period **Construction Process**: - The factor is divided into two dimensions: size (small-cap vs. large-cap) and style (growth vs. value) - The factor measures the relative performance of small-cap stocks compared to large-cap stocks and growth stocks compared to value stocks - Observations include the directional bias (e.g., small-cap preference) and the volatility of these style preferences **Evaluation**: The factor indicates a market preference for small-cap and growth stocks, but with increased volatility, suggesting instability in market style trends [11][12] 2. **Factor Name**: Market Structure Factor **Construction Idea**: This factor evaluates the dispersion and concentration of returns across industries and stocks to assess market structure dynamics **Construction Process**: - Industry excess return dispersion is calculated to measure the spread of returns across different sectors - Metrics such as the proportion of rising constituent stocks and the turnover concentration of the top 100 stocks and top 5 industries are tracked - Changes in these metrics are used to infer market structure stability and concentration trends **Evaluation**: The factor shows a decline in industry return dispersion and a slight increase in stock and industry concentration, indicating a more concentrated market structure [11][12] 3. **Factor Name**: Market Activity Factor **Construction Idea**: This factor measures market activity through volatility and turnover rates **Construction Process**: - Index volatility is calculated to assess market fluctuations - Turnover rates, particularly for indices like the SSE 50, are tracked to gauge trading activity - Observations include changes in these metrics over time **Evaluation**: The factor reveals a slight increase in market volatility but a continued decline in turnover rates, especially for the SSE 50, indicating reduced market activity [11][12] 4. **Factor Name**: Commodity Market Factors **Construction Idea**: These factors analyze trends, momentum, volatility, and liquidity in commodity markets **Construction Process**: - **Trend Strength**: Tracks the continuation of trends in sectors like energy and metals - **Basis Momentum**: Measures the momentum of basis changes, with specific focus on sectors like agriculture and metals - **Volatility**: Assesses the level of price fluctuations in different commodity sectors - **Liquidity**: Evaluates the trading activity and ease of transactions in commodity markets **Evaluation**: The factors highlight strong trends in energy and metals, low basis momentum in agriculture, high volatility in energy, and strong liquidity in energy and metals [23][27] 5. **Factor Name**: Option Market Factors **Construction Idea**: These factors assess market sentiment and risk expectations through option pricing metrics **Construction Process**: - **Implied Volatility**: Tracks the implied volatility of options on indices like SSE 50 and CSI 1000 - **Skewness**: Measures the relative pricing of put options versus call options to infer market sentiment - **Open Interest**: Monitors changes in open interest to gauge market positioning **Evaluation**: The factors suggest stable short-term sentiment but highlight potential downside risks for small-cap stocks based on skewness and rising open interest in put options [33][34] 6. **Factor Name**: Convertible Bond Market Factors **Construction Idea**: These factors analyze valuation and liquidity dynamics in the convertible bond market **Construction Process**: - **Valuation Metrics**: Tracks metrics like the premium rate of bonds near par value and the proportion of low-premium bonds - **Liquidity Metrics**: Monitors trading volume and credit spreads **Evaluation**: The factors indicate a slight recovery in valuation metrics but a rise in low-premium bonds, with stable trading volumes and narrowing credit spreads [35][37] Factor Backtesting Results 1. **Market Style Factor**: - Small-cap preference observed - Growth style preference observed - Increased volatility in both dimensions [11][12] 2. **Market Structure Factor**: - Industry return dispersion decreased - Stock and industry concentration slightly increased [11][12] 3. **Market Activity Factor**: - Market volatility slightly increased - Turnover rates decreased, especially for SSE 50 [11][12] 4. **Commodity Market Factors**: - Strong trends in energy and metals - Low basis momentum in agriculture - High volatility in energy - Strong liquidity in energy and metals [23][27] 5. **Option Market Factors**: - Stable implied volatility for SSE 50 and CSI 1000 - Skewness favors put options for CSI 1000 - Rising open interest in put options for CSI 1000 [33][34] 6. **Convertible Bond Market Factors**: - Premium rates near par value slightly recovered - Proportion of low-premium bonds increased - Trading volumes stable - Credit spreads narrowed [35][37]

Group 1 - The article discusses various options trading strategies, emphasizing their flexibility and complexity, and introduces four basic investment strategies, simple spread trading, typical volatility trading strategies, and hedging strategies [1] - Volatility (Vol) is defined as the degree of price fluctuation of an asset, serving as a measure of uncertainty in asset returns and reflecting the risk level of the asset [3][4] - High Vol leads to greater price fluctuations and uncertainty in returns, resulting in higher theoretical prices for options. Conversely, low Vol results in lower option prices [4] Group 2 - Historical volatility is calculated using past price data and reflects the asset's price fluctuation over a specified period, serving as a basis for analyzing and predicting other types of volatility [4][6] - Implied volatility (IV) is derived from the actual price of options and reflects the market's expectations of future volatility, with a declining IV indicating a potential decrease in option prices [7] - When uncertain about market direction, various option strategies can be employed, including bullish strategies that anticipate price increases [9] Group 3 - Buying call options allows investors to gain the right to purchase an asset at a predetermined price, with potential unlimited profit if the market price rises, while limiting losses to the premium paid [12][13] - Selling put options involves receiving a premium with the obligation to fulfill the contract if exercised, suitable when the market is expected to remain stable or rise, with maximum profit being the premium received [14][16] - Investors should consider market trends, volatility, and time value when selecting option strategies, and should implement stop-loss and take-profit measures to manage risk and enhance potential returns [16]

1. Report Industry Investment Rating The report does not explicitly provide an overall industry investment rating. However, for each financial derivative product, the following outlooks are given: - **Stock Index Futures**: Neutral (suggests a wait - and - see approach) [6] - **Stock Index Options**: Neutral (suggests a wait - and - see approach for direction strategies) [6] - **Treasury Bond Futures**: Neutral (suggests a trend of oscillation) [6] 2. Core Viewpoints - **Stock Index Futures**: External factors bring short - term positive news, but due to uncertainties in tariff policies and lack of fundamental support, investors are advised to wait and see instead of actively increasing positions [6]. - **Stock Index Options**: The volatility is further suppressed, and the market has weak expectations for fluctuations. Direction strategies suggest waiting and seeing, with a focus on covered call strategies and light - position long - volatility strategies [2][6]. - **Treasury Bond Futures**: Market risk appetite has increased, suppressing the bullish sentiment in the bond market. Attention should be paid to upcoming economic data and central bank operations, and different strategies are proposed for different trading purposes [6][8]. 3. Summary by Directory 3.1 Market Views Stock Index Futures - **Market Performance**: The market volume increased and prices rose, with the All - A Index up 1.17%. The catalyst was the US court's prevention of Trump's tariff policy, leading to a general rise in the Asia - Pacific market [6]. - **Futures Market Signals**: The total position of IM increased by nearly 30,000 contracts, and the discount of the current - quarter contract of IM narrowed, indicating active long - position capital layout [6]. - **Investment Advice**: Wait and see due to uncertainties in tariff policies and the low cost - performance of small - cap stocks [6]. Stock Index Options - **Market Liquidity**: Driven by the strong performance of the underlying assets, the trading volume increased by nearly 50%, mainly concentrated in the morning session [2][6]. - **Volatility**: Volatility declined rapidly after the mid - day session, with both call and put volatilities decreasing, indicating weak market expectations for fluctuations [2][6]. - **Investment Advice**: Wait and see for direction strategies, focus on covered call strategies, and lightly position in long - volatility strategies at low levels [2][6]. Treasury Bond Futures - **Market Performance**: Treasury bond futures continued to be weak, with the T main contract opening lower and trading at a low level throughout the day [3][6][7]. - **Influencing Factors**: Uncertainties in Trump's tariff policy, strong stock market performance, and upcoming 5 - month PMI data affected market sentiment [3][6][8]. - **Investment Advice**: Trend strategy: oscillation; Hedging strategy: pay attention to short - hedging at low basis levels; Basis strategy: appropriately pay attention to basis widening; Curve strategy: steeper curve has higher odds in the medium term [8]. 3.2 Economic Calendar - **US Economic Data**: The number of initial jobless claims in the week ending May 24, 2025, was 240,000, higher than the previous value of 227,000 and the forecast of 230,000. The annual rate of the US core PCE price index in April 2025 is expected to be 2.6%, and the final value of the University of Michigan consumer confidence index in May 2025 is expected to be 51 [9]. 3.3 Important Information and News Tracking - **Airlines**: Starting from June 5, 2025, airlines will adjust the fuel surcharge for domestic flights. Flights of 800 kilometers or less will be exempt from the surcharge, while flights over 800 kilometers will charge 10 yuan per passenger per segment [9]. - **Cultural Exports**: Four departments jointly released the list of key cultural export enterprises and projects for 2025 - 2026, identifying 404 enterprises and 121 projects [10]. - **Tariffs**: The Chinese side urges the US to completely cancel unilateral tariff - imposing measures, and the US International Trade Court ruled that Trump's tariff policies were illegal [10]. - **Credit Bonds**: Multiple credit bond ETFs have received approval from the China Securities Depository and Clearing Corporation to be included in the repurchase collateral pool [10].

Group 1 - The core issue with compound interest is the difference between average returns and annualized returns, which can lead to significant discrepancies in actual investment outcomes [4][16][18] - Investors with the same average return can have vastly different annualized returns, highlighting the importance of understanding volatility and its impact on long-term compounding [5][14][26] - The article emphasizes that lower volatility can lead to higher annualized returns, even if average returns remain the same, demonstrating the critical role of risk management in investment strategies [16][27][40] Group 2 - Investment ability is defined as the capacity to achieve returns exceeding those of a benchmark index, with a focus on identifying opportunities with a favorable risk-reward ratio [18][19][20] - The relationship between average returns and investment ability is established, indicating that average returns are a more accurate measure of an investor's skill than annualized returns [22][23] - The article discusses the non-linear relationship between volatility and annualized returns, suggesting that as volatility increases, the potential for higher returns diminishes, creating a critical threshold for investors [29][42] Group 3 - The article presents various scenarios illustrating how different combinations of returns can affect average and annualized returns, emphasizing the importance of maintaining a balanced approach to risk and reward [30][36][39] - It highlights the tendency of investors to chase high returns without adequately managing risk, which can lead to detrimental outcomes, particularly in volatile markets [41][44] - The concept of standard deviation is introduced as a quantifiable measure of volatility, with recommendations for investors to monitor their return fluctuations to optimize their investment strategies [48][50]

Quantitative Factors and Construction Methods 1. Factor Name: Market Style Factors - **Construction Idea**: The market style factors track the balance and volatility between different market styles, such as large-cap vs. small-cap and value vs. growth[11][13] - **Construction Process**: - **Style Balance**: Measure the relative performance of large-cap vs. small-cap stocks and value vs. growth stocks to determine the market's style preference[11] - **Style Volatility**: Calculate the fluctuations in the relative performance of these styles over time to assess the stability of the market's style preference[11] - **Evaluation**: The market style factors showed a balanced preference between large-cap and small-cap stocks, as well as between value and growth stocks. Additionally, the volatility of these styles continued to decline, indicating a more stable market environment[11][13] 2. Factor Name: Market Structure Factors - **Construction Idea**: These factors analyze the dispersion of returns, sector rotation, and trading concentration to understand the structural dynamics of the market[11][13] - **Construction Process**: - **Return Dispersion**: Measure the excess return dispersion across industry indices to evaluate the variability in sector performance[11] - **Sector Rotation**: Assess the speed of sector rotation by tracking changes in sector leadership over time[11] - **Trading Concentration**: Calculate the proportion of trading volume concentrated in the top 100 stocks and the top 5 industries to gauge market concentration[11] - **Evaluation**: The market structure factors indicated a decline in return dispersion, slower sector rotation, and reduced trading concentration, suggesting a more evenly distributed market environment[11][13] 3. Factor Name: Market Activity Factors - **Construction Idea**: These factors measure the overall activity and liquidity of the market through volatility and turnover rates[12][13] - **Construction Process**: - **Volatility**: Calculate the index-level volatility to assess market stability[12] - **Turnover Rate**: Measure the turnover rate of the market to evaluate trading activity[12] - **Evaluation**: The market activity factors showed a decline in both volatility and turnover rates, reflecting reduced market activity, likely influenced by the holiday period[12][13] 4. Factor Name: Commodity Market Factors - **Construction Idea**: These factors analyze the performance, momentum, and liquidity of various commodity sectors[27][30] - **Construction Process**: - **Trend Strength**: Measure the strength of price trends in different commodity sectors, such as energy, metals, and agriculture[27] - **Basis Momentum**: Calculate the basis momentum, particularly for the metals sector, to assess the relative strength of futures prices compared to spot prices[27][30] - **Volatility**: Track the volatility levels across commodity sectors to evaluate risk[27][30] - **Liquidity**: Measure the liquidity of commodity sectors to assess trading ease[27][30] - **Evaluation**: The commodity market factors showed mixed performance, with strong trends in energy and metals, weaker trends in agriculture, and high volatility across sectors. Liquidity remained stable overall[27][30] 5. Factor Name: Options Market Factors - **Construction Idea**: These factors analyze the implied volatility and skewness of options to infer market sentiment and expectations[35] - **Construction Process**: - **Implied Volatility**: Measure the implied volatility levels of options on major indices, such as the SSE 50 and CSI 1000, to gauge market uncertainty[35] - **Skewness**: Analyze the skewness of call and put options to understand market expectations for upward or downward movements[35] - **Evaluation**: The options market factors indicated a divergence in sentiment, with increased optimism for small-cap stocks (CSI 1000) and reduced optimism for large-cap stocks (SSE 50). This suggests a potential shift in market preference post-holiday[35] 6. Factor Name: Convertible Bond Market Factors - **Construction Idea**: These factors evaluate the valuation and trading activity of the convertible bond market[38] - **Construction Process**: - **Valuation**: Measure the average conversion premium of convertible bonds to assess their relative attractiveness[38] - **Trading Activity**: Track the trading volume and turnover in the convertible bond market to evaluate market interest[38] - **Evaluation**: The convertible bond market factors showed a slight increase in valuation, with trading activity continuing to recover, indicating improving market sentiment[38] --- Factor Backtesting Results 1. Market Style Factors - **Style Balance**: Balanced between large-cap and small-cap, as well as value and growth[11][13] - **Style Volatility**: Continued decline in volatility, indicating stability[11][13] 2. Market Structure Factors - **Return Dispersion**: Declined, indicating less variability in sector performance[11][13] - **Sector Rotation**: Slowed down, suggesting reduced changes in sector leadership[11][13] - **Trading Concentration**: Decreased, reflecting a more evenly distributed market[11][13] 3. Market Activity Factors - **Volatility**: Declined, indicating reduced market risk[12][13] - **Turnover Rate**: Decreased, reflecting lower trading activity[12][13] 4. Commodity Market Factors - **Trend Strength**: Strong in energy and metals, weak in agriculture[27][30] - **Basis Momentum**: Highest in metals, declined in other sectors[27][30] - **Volatility**: High across all sectors[27][30] - **Liquidity**: Stable overall[27][30] 5. Options Market Factors - **Implied Volatility**: Increased for both SSE 50 and CSI 1000, indicating higher uncertainty[35] - **Skewness**: Positive for CSI 1000 (small-cap optimism), negative for SSE 50 (large-cap caution)[35] 6. Convertible Bond Market Factors - **Valuation**: Slight increase in average conversion premium[38] - **Trading Activity**: Continued recovery in trading volume[38]

Core Viewpoint - The article discusses the phenomenon of rapid price fluctuations in commodities, particularly gold, and how these fluctuations attract attention and lead to significant market reactions. It proposes a physical explanation for this behavior by exploring the hidden factor of price change rate and its impact on market dynamics [3][4][41]. Group 1: Price Volatility and Market Reactions - Rapid price movements in commodities, such as gold, generate significant public interest and commentary from various market participants [3][5]. - High price change rates are equivalent to high volatility, which tends to converge to a stable range over time [7][9]. - The article illustrates that when implied volatility spikes, it often leads to increased market activity, particularly in shorting volatility strategies [9][17]. Group 2: Shorting Volatility Strategies - One common method to short volatility is through straddles, which involve selling both a put and a call option at the same strike price [12][21]. - The effectiveness of shorting volatility is highlighted by the potential for profit when the underlying asset's price remains within a certain range [13][16]. - The article emphasizes that during periods of high volatility, traders can capitalize on the eventual return to lower volatility environments, thus profiting from the price differences [16][17]. Group 3: Market Dynamics and Trading Strategies - The article discusses alternative strategies for shorting volatility, such as selling calls during price surges and selling puts during price drops, which allows traders to take advantage of market sentiment [23][27]. - It notes that these strategies carry a speculative nature, as they involve betting against prevailing market trends [28][29]. - The relationship between volatility and price movements is explored, indicating that volatility can influence price direction, particularly during rapid market movements [32][35]. Group 4: Implications for Trend Traders - The article warns trend traders to be cautious of extreme market movements, as rapid price changes can lead to temporary reversals due to the influx of arbitrage capital [37][40]. - It explains that understanding volatility can help traders anticipate market corrections following sharp price movements [40][41]. - The conclusion suggests that the alignment of volatility thresholds with market commentary can create a feedback loop, influencing price movements in unexpected ways [41][42].

1. Report Industry Investment Rating - Not mentioned in the provided content 2. Core View of the Report - This week, the A - share market showed a narrow - range oscillation, with daily trading volume remaining above one trillion. For index options, the overall strategy is to focus on defense or go long on volatility. Specifically, for index options, the trend strategy is to focus on defense, and the volatility strategy is to buy wide - straddle options after the decline in volatility to go long on volatility. For example, for the CSI 300 index, the weekly K - line showed three consecutive positives, but the Wednesday color K - line indicator remained green, and the daily three - color K - line indicator turned red. For the CSI 1000 index, the daily line first rose and then declined, and the weekly line returned to the 120 - week moving average. For the SSE 50 index, it remained above the 850 - day moving average, and the daily three - color K - line indicator remained red [2] 3. Summary According to the Table of Contents 3.1 CSI 300 Index Options (IO) - Index performance: The CSI 300 index had a narrow - range oscillation. The weekly K - line showed three consecutive positives, but the Wednesday color K - line indicator remained green, and the daily three - color K - line indicator turned red [10][12] - Option data: The 2505 contract of CSI 300 index options had the maximum open - interest strike prices of call and put options both at 3800, and the option pain point was also 3800. The implied volatility first decreased and then increased. The current - month IF futures contract was at a discount to the underlying, and the spot - futures basis narrowed, while the basis of the next - month contract at a discount to the current - month contract widened. The trading volume of IO options decreased, and the open interest increased. The trading volume PCR of options decreased, and the open - interest PCR increased [14][17][20] 3.2 CSI 1000 Index Options (MO) - Index performance: The CSI 1000 index's daily line first rose and then declined, and the weekly line returned to the 120 - week moving average. The Wednesday color K - line indicator remained green, and the daily three - color K - line indicator turned red [38][41] - Option data: The 2505 contract of CSI 1000 index options had the maximum open - interest strike prices of call and put options at 6000 and 5800 respectively, and the option pain point was 5900. The implied volatility first decreased and then increased. The current - month IM futures contract was at a discount to the underlying, and the spot - futures basis narrowed, while the basis of the next - month contract at a discount to the current - month contract widened. The trading volume of MO options decreased, and the open interest increased. The trading volume PCR of options decreased, and the open - interest PCR increased [43][46][49] 3.3 SSE 50 Index Options (HO) - Index performance: The SSE 50 index remained above the 850 - day moving average. The weekly K - line closed in the negative, and the Wednesday color K - line indicator remained gray, while the daily three - color K - line indicator remained red [67][69] - Option data: The 2505 contract of SSE 50 index options had the maximum open - interest strike prices of call and put options at 2750 and 2650 respectively, and the option pain point was 2650. The implied volatility increased. The current - month IH futures contract was at a discount to the underlying, and the spot - futures basis narrowed, while the basis of the next - month contract at a discount to the current - month contract widened. The trading volume of HO options increased, and the open interest increased. Both the trading volume PCR and open - interest PCR of options increased [71][73][77]

Investment Rating - The report does not explicitly provide an investment rating for the copper industry or related options strategies [1]. Core Insights - The macroeconomic environment is influencing copper prices, with tariff expectations affecting inflation transmission, leading to a bearish outlook due to weak U.S. economic data and a hawkish Federal Reserve [4][12]. - Domestic policy expectations during the Two Sessions period are relatively positive, contrasting with global trends [4][12]. - Supply disruptions are intensifying, with spot TC falling to negative values and refining losses worsening compared to last year, despite high copper prices and stable refined production [4][12]. - The price range for copper is expected to oscillate between 75,000 and 78,000, with recent attempts to breach 77,500 being unsuccessful [4][12]. Summary by Sections 1. Market Review - In February 2025, copper prices experienced high volatility, with the Shanghai copper contract reaching a maximum of 78,740 CNY/ton and a minimum of 75,000 CNY/ton, closing at 76,840 CNY/ton, reflecting a monthly increase of 1.51% [7]. - London copper mirrored this trend, with a peak of 9,684.5 USD/ton and a low of 8,914.5 USD/ton, closing at 9,361.0 USD/ton, marking a monthly increase of 3.46% [7]. 2. Options Market Review - Total copper options trading volume in February 2025 was 1,475,487 contracts, an increase of 302,502 contracts from the previous month, with a latest open interest of 66,851 contracts, up by 14,864 contracts [8]. - The main contract CU2504 saw a total trading volume of 388,954 contracts, with an open interest of 48,459 contracts, indicating a significant increase in trading activity [9]. 3. Volatility Analysis - The short-term historical volatility for Shanghai copper fell significantly, with the latest 10-day historical volatility at 9.64%, down from 14.06% [10]. - The implied volatility for the main CU2504 contract decreased to 12.26%, down from 14.21%, indicating a substantial drop in market expectations for future price movements [11]. 4. Options Strategy Recommendations - Given the current market conditions, it is recommended to sell call options at high copper price points, as the market is expected to remain in a range-bound state due to tariff expectations [12].