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Yesterday Baosteel's warrants finally regained its upward momentum, rising 7.88% throughout the day, with a turnover of 1.226 billion yuan, slightly larger than the previous two trading days. The intraday price fluctuated significantly, and T+0 profit opportunities also increased significantly over the past few trading days.
Many investors, even some media, still have many misunderstandings about warrants, a new product. If Guotai Jun'an wants to issue Baosteel covered warrants, his action is to sell a call Baosteel option and make a bet with the market. To buy warrants is to gamble with the issuer on the market-- Similar misunderstandings are extremely unfavorable to the development of warrant market and the operation of investors themselves
Beneficial.
On the surface, investors of covered warrants pay the issuer the funds to purchase warrants, and the money earned by investors at maturity is paid by the issuer. Therefore, many people believe that there is complete opposition between investors and issuers, and what investors earn (or lose) is what the issuer loses (or gains).
In fact, the issuer and investors are not gambling. When selling warrants, the issuer does not need to add its own judgment on the direction of changes in the underlying stock price. In short, the reason is that when investors buy and sell warrants, issuers will conduct corresponding hedging operations, such as shares A certain amount of G Baosteel is bought and sold in the market to ensure that when G Baosteel is higher than the strike price by 4.50 yuan on the maturity date, there are a corresponding number of shares in hand for investors to exercise their subscription rights. On the maturity date, if investors make profits, these profits are derived from the rise of G Baosteel held by the issuer, that is, provided by the stock market; If the investor loses the investment cost, it is also used to compensate the issuer for the loss of holding G Baosteel, that is, these losses are earned by the stock market.
The issuer's income from issuing warrants is mainly used to compensate its financing costs and hedging transaction costs. Specifically, since the sale of warrants is equivalent to financing warrant investors to invest in G Baosteel, the issuer's own financing costs; On the other hand, the issuer hedges by buying and selling G Baosteel, mainly by buying at a high price and selling at a low price. That is, when G Baosteel rises, the exercise probability of warrants increases. The issuer needs to buy G Baosteel, while when G Baosteel's price falls, it needs to sell G Baosteel. The loss is part of the hedging transaction cost.
Perhaps investors will be concerned about how issuers make profits by issuing warrants? The answer is: risk management. After issuing warrants, an issuer must use its premium income or even other funds to build a portfolio, including underlying stocks or other financial products, to avoid risks. If the income from selling warrants is surplus after paying the due warrant investors' profits and making up the hedging transaction costs and financing costs, this is the issuer's profit that everyone cares about. Of course, issuers may also lose money due to poor risk management.
Author: Guotai Jun'an New Product Development Department
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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