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Guotai Jun'an New Product Development Department Zhang Hao
Generally speaking, the value of warrants consists of intrinsic value and time value. The so-called intrinsic value refers to the gains that warrant holders can obtain if they exercise immediately. If the return is positive cash flow, we call the warrant in the money; If the return is negative, the warrant is out of money; The return equals 0, and the warrant belongs to the state of at the money. It should be noted that these three forms
The states may appear during the validity period of the warrant. The states can be converted to each other. They may be out of the price today and in the price tomorrow. Warrants in corresponding states are also called in price warrants, out of price warrants and parity warrants.
For example, an investor, Xiao Li, initially purchased a warrant with an exercise price of 50 yuan. If the underlying shares If the current price is 60 yuan, Xiao Li will immediately exercise the purchase right, buy the underlying stock at 50 yuan, and sell the stock at the market price to obtain a cash income of 10 yuan. We call Xiao Li's warrant now in the price state, and its internal value is 10 yuan; If the current price of the underlying stock is 40 yuan, if Xiao Li exercises his right immediately, it will only cause losses. Of course, he will not exercise his purchase right. At this time, the warrants are in an out of price state, and their intrinsic value is 0; If the current price of the stock is 50 yuan, the warrant is in the parity state, and Xiao Li will not exercise his rights, but as long as the stock price changes slightly, the warrant will be transferred to the in price or out of price state.
The opposite is true for put warrants. To sum up, the relationship between the intrinsic value of call and put warrants and their in price and out of price status is shown in the table.
In price and out of price conditions are particularly useful for investment analysis and judgment when the residual maturity of warrants is not long and the time value is close to zero. The so-called time value refers to the premium that the warrant holder is willing to pay when the warrant that is in the price or out of the price enters the in price state or is already in the price state but deeper into the price. This expectation and the corresponding premium will become lower and lower with the passage of time until the maturity date is zero, so it is called time value.
When approaching the maturity date, the holder should sell the warrants beyond the extreme price, such as the call warrants whose stock price is much lower than the exercise price, or the put warrants whose stock price is much higher than the exercise price, as there is little chance for the warrants to be transferred into the price at the expiration date, so he should not take any chances. For in price warrants, it depends on the degree of in price warrants and views on the future market. If the warrant is in an extreme price state and the leverage ratio is not high, it should be sold; While the leverage ratio is large and the warrants are not extremely within the price, whether to sell or not depends mainly on the future view: if you are optimistic, you will continue to hold; If you are not optimistic, you will sell. For warrants at parity, whether they are sold or not depends mainly on the outlook on the future market. If they are optimistic, they will continue to hold, and if they are bearish, they will sell. This kind of warrant has the greatest risk.
| S vs X |
Call warrant (intrinsic value=max (S-X, 0) |
Put warrant (intrinsic value=max (S-X, 0) |
| S > X |
In price |
Out of price |
| S = X |
parity |
parity |
| S < X |
Out of price |
In price |
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Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.
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