Li Songci
One of the key concepts of investment warrants is to use leverage effect to amplify investors' funds: the greater the actual leverage, the greater the potential profits or losses of investors. Therefore, when investors add stock warrants to their personal investment portfolio, they should first weigh the weight and calculate the proportion of funds that should be invested.
The actual leverage is defined as the percentage that the value of the warrant should theoretically change when the relevant assets change by 1%. Assuming that an investor is optimistic about a positive stock and plans to invest 10000 yuan in the stock, if he considers investing in a subscription certificate with 10 times the actual leverage, how much money should he put into the subscription certificate in this case, so as to obtain the potential return similar to that of putting 10000 yuan into the positive stock?
In brief, a simplified formula can be used to calculate:
Amount to be invested in regular shares/actual leverage ratio=funds to be invested in share warrants
In the above example, the investor should use 1000 yuan (10000 yuan/10) to purchase the subscription certificate, so that he can obtain about the same potential return or loss level as the investment in the regular shares.
However, the actual leverage actually changes with the price and time value of the positive shares. Therefore, this simplified formula can only be used for reference and in the case of only slight changes in the stock price of the positive shares in the short term. For example, if the positive share price changes greatly and the actual leverage changes greatly, the "answer" of the formula will also change greatly. Therefore, investors should update and review the investment funds and actual leverage from time to time, so as to ensure that the amplification rate is not too large or too small.
In reality, many investors tend to put all of the 10000 yuan in the stock warrant, and then when the trend reverses, they realize that they have suffered excessive risk. The actual leverage ratio refers to the range of change in the theoretical price of the warrant when the positive share price changes by 1%. Taking the above example as a proof, assuming that the stock falls by 5%, since the actual leverage is 10 times, and the funds invested have not been reduced proportionally, after the amplification of the share warrant, the investor will actually bear the decline risk equivalent to the 100000 yuan invested in the stock.
Therefore, generally speaking, assuming that the actual leverage of general warrants in the market is about 10 times, investors should theoretically only invest about 10% of their portfolio in warrants. In the above example, if the total portfolio fund of an investor is 10000 yuan, he should only invest 1000 yuan in the warrant, instead of putting all his eggs in one basket. Because, if the investment amount is not properly controlled, it is equal to enlarging the investment. The greater the actual leverage of the warrant, the lower the investment amount should be. Assuming that the actual leverage of the warrant in the above example is 20 times, he should further reduce the investment amount to 500 yuan (10000 yuan/20) to control the investment risk.
If investors can balance the risk return and capital investment in the amplification of warrants. In that case, the warrant will not bring too much risk to investors, but also can strive for the return similar to that of investment in regular stocks.
(The writer is executive director of Goldman Sachs Asia and negotiable securities Director of Chemical Derivatives Department. Disclaimer: The data is for reference only and does not constitute an offer, solicitation or invitation, inducement, representation, suggestion or recommendation for any investment transaction.)
