Li Songci
In case of sharp rise or fall in the market, warrant investors should pay more attention. The following is a brief introduction to some considerations for investing warrants under the market conditions of sharp rise or fall.
If the market rises or falls sharply, investors who see the trend may earn good returns in the short term by virtue of the leverage effect of warrants. However, many investors are based on short-term investment objectives when trading warrants. Therefore, unless the situation of sharp rise and sharp fall continues to occur, many investors who hold warrants and see the trend may sell and arbitrage on the next day or in a very short time after the sharp rise and sharp fall, while warrants with more holdings in some markets may affect the rise due to large shipments.
Therefore, even though investors expect that the market may develop unilaterally, in the short term after a sharp rise or fall, many people will also consider selling half or part of their holdings for arbitrage in a short time to ensure that they have some profits in hand, while the remaining holdings can consider continuing to hold and wait for development, so that profits can be accumulated.
As for those investors who misread the trend, there are relatively many factors to consider. First of all, most investors may not be able to face investment errors in real time and make appropriate stop erosion for the warrants they hold, thus leading to the continuous accumulation of high level hedged holdings of related warrants (commonly known as "crab goods"). When these investors are willing to stop erosion and leave the market will become one of the factors affecting the price performance of warrants.
In addition, when the market drops sharply, the leverage ratio of many subscription warrants will rise accordingly. However, as the price of the warrant continues to fall, the actual leverage may also fall instead of rising. For example, when the price of the underlying stock falls from $100 to $95, and a warrant has 10 times the leverage, the price of the warrant may fall from $0.20 to $0.10. However, to rise from $0.1 to $0.2, the warrant must rise by 100% before it can be "tied", so the positive shares must have a larger rise. For example, if the stock price in the example drops from $100 to $80, the warrant price is theoretically $0.0 or close to the level of $0.0. It is quite difficult to recover to $0.2. When warrants become more and more free of price, their sensitivity to positive shares will be lower.
Since the data of warrants will change with their in price and out price conditions and time values, compared with investment shares The stop earning and stop erosion levels of warrants need to be more strictly implemented.
(The writer is executive director of Goldman Sachs Asia and negotiable securities Director of Chemical Derivatives Department. Disclaimer: The above data is for reference only and does not constitute an offer, solicitation or invitation, inducement, representation, suggestion or recommendation for any investment transaction.)
