Warrants are back with a vengeance in Hong Kong. The city has long been one of the world's leading markets for trading these derivative contracts, which give investors the option to buy or sell an underlying asset, usually a stock, at a fixed price in the future. The market took a hit during the financial crisis as stocks plummeted, but over the past few months the turnover of derivative warrants, including callable bull/bear contracts, has risen significantly. They now constitute close to 30 per cent of the total stock market turnover, according to traders at investment banks. There were more than 4,000 warrants listed on the Hong Kong stock exchange in August compared with a few more than 3,000 on December 31. Warrants can be attractive because they cost only a fraction of the underlying stock. This 'leverage' means that investors can gain hefty returns, or suffer deep losses, that are larger in percentage terms than the movement of the underlying stock. The August turnover of derivative contracts and callable bull bear contracts reached HK$15.9 billion, up from July's HK$15 billion, according to a report by HSBC Global Markets, an active issuer of derivative warrants. One of the reasons for the renewed popularity of warrants is that many Hong Kong companies reported strong financial results in August. The prices of derivative warrants on some of these stocks shot up quickly, said Keith Chan, head of listed products sales at HSBC Global Markets. Hutchison Whampoa's warrants went up 130 per cent a day after the firm released its better than expected half-year earnings, while Hutchison shares rose by almost 10 per cent. HSBC Global Markets estimated call warrants on the conglomerate attracted HK$189 million in August - the highest in years. 'I think a lot of people who bought these call warrants on Hutchison would have made a handsome gain,' said Alex Wong, a director at Ample Finance Group. Hutchison's share price surged sharply in early August, retracted, and then rose again towards mid-August. Wong said this double peak presented two opportunities to make large, quick returns because the time to buy a call warrant was when the underlying stock was likely to make a sharp gain within a short time. The number of warrants on Hutchison rose from 14 to 29 in mid-August, said Martin Wong, director of equity derivatives at Rabobank International. 'But there were always some people who bought the contracts at the wrong time,' said Chan. 'They held it for too long and therefore made losses when the stock price came back down.' Even though companies report strong results, there is no guarantee their share prices will surge, and warrants traders sometimes overlook these risks, said Wong. 'People who buy these products have a gambling mindset, betting on small price movements of the underlying stock,' he said. 'It worked on Hutchison but it didn't work on China Mobile or China Life. It's never a 100 per cent sure win.' Call warrants on China Life, the mainland's largest insurer, attracted capital inflow of HK$193 billion. But China Life's stock plunged 13.7 per cent in August despite the release of strong earnings. Dealers expect the turnover of derivative warrants to stay high in the next few months.