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□ Li Songci, Managing Director of Societe Generale Securities (Hong Kong)
Like stocks, warrants can be traded on the Hong Kong Stock Exchange during trading hours. The introduction of the new rules requires issuers to provide circulation and publish daily trading information, so that warrants have high flow and transparency. Since the derivative warrants on the Hong Kong market are basically European style warrants, investors do not need to hold the warrants to exercise them on the maturity date when investing in warrants, but can buy or sell the warrants at any time through the exchange, and of course, can hold the warrants to the maturity date. And buy
The sale of most derivative warrants is free of stamp duty.
The warrant price is affected by many factors. Here, we will focus on three main factors:
（1） Price of relevant assets
The warrant price includes "intrinsic value" and "time value". The intrinsic value refers to the difference between the price of the relevant assets and the exercise price, that is, the profit from the exercise of the warrant. This also leads to the concepts of "arriving at the price", "within the price" and "outside the price".
Arrived price: the warrant with the exercise price equal to (or very close to) the current price of the relevant assets
In price: In price subscription (put) warrant refers to the warrant whose exercise price is lower (higher) than the current price of relevant assets
Out of price: Out of price subscription (put) warrant refers to the warrant whose exercise price is higher (lower) than the current price of relevant assets
（2） Time value
The time value reflects the value of waiting for the relevant assets to make price changes favorable to investors before the maturity date (up favorable subscription certificate, down favorable put certificate).
Theoretical price of warrant=intrinsic value+time value
Example: The price of C subscription certificate (9905) of Foxconn on August 1, 2004
Company C share price: 102.50 Hong Kong dollars; Exercise price: HK $95.00; Share warrant price: HK $1.63
Intrinsic value: 0.75 Hong Kong dollars [(102.50 Hong Kong dollars - 95.00 Hong Kong dollars)/10]
Time value: 0.88 Hong Kong dollars (1.63 Hong Kong dollars - 0.75 Hong Kong dollars)
The closer to the maturity date, the lower the time value of the warrant (time shrinkage). This is because the opportunity for the relevant asset price to rise above the exercise price (for the warrant) or fall below the exercise price (for the warrant) before the maturity date is diminishing, so the time value reflecting the waiting value is also lower (assuming that other factors remain unchanged during the period).
（3） , amplitude
Volatility is the most important factor in evaluating the price of warrants. Volatility measures the frequency and extent of changes in asset prices related to warrants. The amplitude is the annual statistics, which represents the standard deviation of price changes at the end of a period in percentage. For example, a certain futures contract is currently trading at the level of HK $100, with a 10% fluctuation. We know that the futures contract has 68% of the time to trade between HK $90 and HK $110. At the same time, the contract will be concluded between 80 and 120 Hong Kong dollars 95% of the time, and between 70 and 130 Hong Kong dollars 99.7% of the time.
Two kinds of amplitude: historical amplitude and extended amplitude. The historical volatility reflects the annual standard deviation of prices in the past period. The historical amplitude is calculated based on historical data, which reflects the price changes of related assets in the past, and also shows the price change patterns of related assets in the past.
Extended volatility is used to price options and warrants. On the issue date, the issuer needs to predict the price change trend of the relevant assets during the validity period of the share certificate, and set the issue price for the share certificate. The historical amplitude is not enough to provide an indicator. The extended amplitude is the consensus of the market on the expected amplitude during the validity period of the stock certificate, so it is different from the historical amplitude based on past data.
When the warrant is listed on the exchange, its purchase and sale price is not only determined by the theoretical price, but also affected by the law of supply and demand in the market. The extension amplitude listed on Bloomberg News or local newspapers is calculated based on the purchase and sale price of stock certificates. Therefore, the extension amplitude is also affected by the huge demand of investors for stock certificates or the pressure of profit selling.
In general, the extension amplitude of listed warrants should be consistent with the relevant listed/OTC options. However, the extension amplitude of listed warrants is usually slightly higher than that of relevant listed/OTC options by several percentage points, because the price of warrants has included listing fees and attorney fees. In addition, the listing warrant is more suitable for retail investors, and its share value is relatively low (about $20000 to $50000). On the other hand, listed/over-the-counter options are often traded between derivatives companies. The contract turnover is large (the share value is between US $5 million and US $10 million), so the price is more competitive. This difference can also be regarded as the difference between the retail price and the wholesale price of general products.
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