Ping An Securities Derivatives Department
According to the relationship between the exercise price and the market price of the shares, warrants can be divided into three categories: in price securities, out of price securities and price securities. When the stock price is higher than, lower than or equal to the exercise price, the subscription warrant can be called in price, out of price or parity warrant respectively; For put warrants, they are called out of price, in price or parity warrants respectively. In price warrants have certain intrinsic value. The higher the degree of in price, the greater the intrinsic value. The parity and out of price warrants have no intrinsic value, only time value.
Other conditions are the same, the risk of in price warrants is generally smaller than that of out of price warrants. For example, for deep in price warrants that are nearing maturity, although the warrants may be out of price at maturity under extreme circumstances, this possibility is very small after all. For warrants with a high degree of out of price and a limited residual maturity, there is a great possibility of returning to zero at maturity, and once they are still out of price at maturity, investors holding these warrants will lose all principal.
Take China Southern Airlines JTP1 as an example. It was due in late June this year, more than a month ago, and its exercise price was 7.43 yuan, which is still far from the regular stock price of 12.13 yuan (taking the closing price on May 7). Therefore, China Southern Airlines JTP1 is very likely to return to zero when it expires. For such deep out of price warrants, investors must pay more attention to risks and invest cautiously.
To be specific, the high risks of ex price securities are shown in the following two aspects:
First, from the perspective of sensitivity to time changes, the value of time will be gradually lost with the passage of time. Out of price warrants have only time value but no intrinsic value. Therefore, compared with in price warrants, the risk of time value loss will be more prominent on out of price warrants.
Second, from the perspective of leverage effect, generally speaking, the effective leverage level of ex price securities is greater than that of in price securities. The effective leverage represents the percentage of the change in the price of warrants when the price of equity shares changes by 1%, and represents the actual magnification of the return on investment warrants relative to the return on investment in equity shares when the amount of capital invested in equity shares and warrants is equal. This means that investors holding out of price securities need to bear greater risks compared with in price securities. If the positive stock changes in the direction beneficial to investors, then investors have the opportunity to obtain higher returns; However, if the change direction of the positive shares is unfavorable to the investors, it is likely that the losses will also be serious.
So, is it true that the higher the degree of price, the lower the investment risk? This is not necessarily the case. It also needs to be comprehensively considered in combination with the premium level of warrants and the remaining maturity and other factors. If the premium rate of warrants is very high and the residual maturity is very short, even deep in price warrants are also very risky. For example, for a warrant with a remaining term of one month, the current price is 8 yuan, the exercise price is 5 yuan, the positive share price is 10 yuan, and the exercise ratio is 1:1. Although it is within the deep price, its premium rate is also very high at this time, reaching 30%. That is to say, the principal can be guaranteed only if 30% of the investors in the regular stock increase within one month, which shows that the investment risk of this warrant is still very high. Therefore, investors can not simply use the degree of inside and outside the price as the basis for judging investment risks, but should combine various factors to judge.
