Everbright Securities: low premium warrant with low risk

Everbright Securities

Compared with the shrinking transaction amount in the A-share market, the trading volume of warrants has been kept at a very active level. With its T+0 hot weather advantage, warrants have good liquidity, obvious wealth effect, and will be repeatedly pursued by funds. In the bull market atmosphere and in the foreseeable period, the value of put warrants is zero from the perspective of internal value. Therefore, the risk is relatively high, and participation is not recommended. Warrants generally have a certain value, and most of them are issued by blue chip companies. Therefore, even if the investment in the warrant fails, the right to purchase the target company's shares at a relatively low price can be obtained in the future. However, I still emphasize that although warrants are generally valuable, they are still risky. How is the risk generally assessed? We can make a simple assessment based on the premium of the warrant on its positive shares. The higher the premium rate, the less valuable the warrant is. Take two new warrants as an example. Due to the habit of speculation in Chinese stock market, SFC1 and SFC2 of Shenzhen Stock Exchange were warmly sought after once they were listed. After two limit ups, SFC1 premium of Shenzhen Stock Exchange was 37.52% and SFC2 premium of Shenzhen Stock Exchange was 42.43%, triggering a huge sell-off of the warrants today, leading to a decline of 14.37% in SFC1 and 10.66% in SFC2 of Shenzhen Stock Exchange. The risks are ordinary. However, we found that these two new warrants were wildly suppressed due to their huge premium, while other warrants with high premium also reported sharp declines. On the contrary, other warrants with lower premiums highlight investment opportunities. For example, Yili CWB1 with a premium of - 2.3% increased by 1.55%, OCT HQC1 with a premium of - 10% increased by 1.43%, and Steel Vanadium GFC1 with a premium of 5.4% increased by 0.92%.

Because the market is in the process of rebounding, and because of its leverage effect, the increase of warrants may be larger than that of regular stocks, so you can choose the relatively valuable varieties for short-term participation.