Ping An Securities Derivatives Department
Generally speaking, when the positive shares maintain a sideways trend for a long time, the warrant holders will be in a more unfavorable situation. What is the reason?
The first is the loss of time value of warrants. The biggest difference between warrants and stocks is that warrants have a certain duration. After the expiration of warrants, whether they are exercised or not, they will become worthless. We know that the warrant is actually a right granted to investors. Therefore, the longer the remaining term of the warrant, the greater the imagination space left to investors, and correspondingly, the higher the value of the warrant itself; On the contrary, the shorter the remaining period of the warrant, even if there is no change in other factors such as the price of the shares, the value of the warrant will also be discounted.
The rate of time value loss of warrants is not constant. When the warrants tend to be out of price and the remaining period is less, their time value will be lost faster. At present, most of the warrants listed and traded in China are out of price, and the degree of out of price of individual warrants even exceeds 50%. The time value loss is relatively fast. Therefore, investors have to face the risk of rapid decline in the time value of warrants when regular stocks run rampant for a long time.
Secondly, there is a risk that the extension amplitude of warrants will decrease. In our previous articles, we mentioned the extension amplitude many times, which represents the market's expectation of the positive stock amplitude in the future duration of warrants. As the holders of warrants only have rights and do not assume any obligations, the profit space is large and the loss space is relatively limited. Therefore, if the volatility of the positive share price is large, investors will have a larger imagination space for future profits, and the warrant price should naturally be higher, that is, the extension amplitude and the warrant price change in the same direction. The higher the extension amplitude, the higher the warrant price will be, whether it is a call warrant or a put warrant.
The extension amplitude is affected by the positive stock volatility. Generally, when the positive stock amplitude rises, the extension amplitude will also increase accordingly, and vice versa. When the positive shares run rampant for a long time, the fluctuation of positive shares will decrease, which may also cause the extension fluctuation of warrants to decrease, thus leading to the corresponding decline of warrant prices. For the current warrants in China, the extension amplitude is generally high, which has accumulated a greater risk of decline. Once the positive shares enter the horizontal market, the risk of loss caused by the reduction of extension amplitude of warrants becomes more prominent.
Therefore, when encountering the long-term prevailing market situation of positive shares, warrant investors should be aware of their own risks, control their positions and prudently handle their invested funds. Of course, this does not mean that the warrants will have no investment value at this time. Investors can consider warrants with slightly higher effective leverage. Even if the positive shares only fluctuate slightly, the price of warrants will still change significantly; At the same time, keep fast in and fast out to reduce the loss of time value of warrants.
