Shanghai Stock Exchange investor education column
Financial Derivatives Department of CIC Securities
Part of the value of warrants comes from the volatility. Volatility includes implied volatility and historical volatility. Implied volatility is the value of volatility calculated by substituting the trading price of warrants in the market into the theoretical pricing model of warrants. The historical volatility reflects the volatility of the underlying assets in the past. With other factors unchanged, the higher the historical volatility, the higher the value of warrants. On the other hand, the implied volatility of underlying assets can be calculated by substituting the market price of warrants into the B-S formula of option pricing. The implied volatility is higher than the historical volatility, the warrant price is too high, and the investment risk is large; The implied volatility is lower than the historical volatility, the warrant price is low, and the investment risk is small. The greater the difference between implied volatility and historical volatility, the more unreasonable the price of warrants.
The implied volatility is a variable, which will change with the fluctuation of the warrant price. The change of the implied volatility will sometimes offset the impact of the price change of the underlying asset. For example, when the price of the underlying stock changes only slightly, the warrant price with a large implied volatility may not change accordingly. The investment risk of warrants with higher implied volatility is generally higher. Therefore, comparing the implied volatility of warrants is helpful for investors to make rational investment in warrants.
According to the closing data on April 28, the implied volatility of China Southern Airlines JTP1 and Shenzhen Stock Exchange SFC2 is the highest, both of which are above 180%, Rizhao CWB1 Among the 18 tradable warrants, only Yunhua CWB1 and Steel Vanadium GFC1 have an implied volatility of less than 50%, which is zero. If investment warrants are only considered from the implied volatility index, only Yunhua CWB1 and Vanadium Steel GFC1 have corresponding investment value among tradable warrants in the two markets. In fact, Yunhua CWB1 and Steel Vanadium GFC1 are both negative premium warrants. The price of negative premium warrants mostly reflects the intrinsic value of warrants, and the time value of warrants accounts for a small proportion. In this case, the sensitivity of warrant prices to implied volatility is very low, and the reference role of implied volatility is not very large. For the two share reform warrants of China Southern Airlines JTP1 and Shenzhen Stock Exchange SFC2, as the remaining maturity is less than two months and the warrants are negative premiums, their time value will lose faster and their implied volatility is relatively high. Among them, SFC2 of Shenzhen Development Bank is a warrant with high price and high implied volatility. The change of implied volatility will offset the impact of the price change of the underlying stock. Although the price of the underlying stock rises, the price of SFC2 of Shenzhen Development Bank may not rise but fall, and there is a certain risk in the investment. China Southern Airlines JTP1 belongs to the put warrant beyond the deep price. Its price only reflects the time value, while its remaining duration is less than two months, and the time value will accelerate the loss. Theoretically, it has no investment value. Investors must be vigilant and resolutely avoid participating in high-risk speculation. As for other warrants with high implied volatility, it reflects investors' enthusiasm for warrant investment under the market conditions that China's derivatives market is not perfect and there is a lack of warrant trading varieties, but investors need to pay attention to the risks reflected by their high implied volatility.
The implied volatility of the warrant can be calculated through the warrant calculator provided on the warrant professional website. Just input several parameters such as the exercise price, the underlying stock price, the warrant price, the exercise ratio and the risk-free interest rate to calculate the implied volatility of the warrant, so as to provide meaningful reference indicators for the warrant investors.
