The relationship between the transaction, liquidity and street goods of state-owned enterprises' covered warrants

When investors invest in state-owned enterprise covered warrants, in addition to considering the value of the warrants and related risk indicators, the trading volume, liquidity and street volume of warrants should also be considered. More importantly, these three factors cannot be viewed in isolation. Investors should see their internal links and conduct comprehensive analysis to minimize risks.

Trading volume is the total amount of warrant transactions in a period of time, indicating the active degree of investors in warrant transactions. The purpose for investors to buy and sell warrants in the market is nothing more than to speculate on direction, volatility, arbitrage or hedging. Due to the limitation of information and technology, it is relatively easy for warrant retail investors to expand their business by the direction and amplitude of speculation. Generally speaking, large trading volume means that there are many investors participating in warrant trading and warrant trading is active. On the other hand, it also means that investors have different views on the future market of warrants. Small trading volume indicates that there are fewer investors participating in warrant trading, and warrant trading is not active enough. Too small trading volume will lead to poor liquidity of warrants, making it difficult to buy and sell warrants, making investors bear greater liquidity risk.

Large trading volume indicates good liquidity, and investors can easily buy and sell warrants. However, for warrants with large trading volume, investors must consider the market volume of warrants. From the perspective of investors, when a warrant is listed, retail investors and professional investors begin to buy and sell warrants, making the warrants begin to have trading volume, trading and liquidity. However, whether a warrant can have street goods, that is, warrants held in the market, depends on whether retail investors and professional investors hold the warrants overnight. If not, it means that although the warrant has been transacted, the transaction comes from investors who trade within the day, and there is no street goods; If there is, it means that the warrant has been transacted and there are street goods. The reason why retail investors and professional investors hold positions overnight is that they expect the positive shares to change in direction and amplitude.

There are mainly three aspects of enlightenment from the transaction of warrants and the change of street goods. First, from the perspective of liquidity, if the trading volume of warrants is large and the street cargo volume is also large, then the liquidity of warrants is relatively high. Second, from the perspective of investors, if there is more and more warrants on the market, this indirectly reflects the market's view on related positive shares. Based on specific market data, the first batch of 21 ICBC warrants were listed on October 27, 2006, with a turnover of 1.2 billion yuan on that day. As of December 29, there were about 109 ICBC warrants on the market, and the overall market volume of warrants had reached 2.61 billion in two months. The traditional state-owned enterprise Guoshou warrants are different. As of December 29, 2006, there were about 130 Guoshou subscription certificates on the market, and the overall stock volume of subscription certificates was 2.66 billion. ICBC's warrants have been listed for only two months. Although the number of warrants is less than that of Guoshou warrants, their street volume has grown rapidly, even approaching the overall market volume of Guoshou warrants. This reflects that warrant investors are relatively optimistic about the future trend of ICBC. Of course, this is just a general view. When it comes to a certain warrant, it should be analyzed specifically. Third, from the perspective of market sentiment, if the trading volume of warrants is large and the street goods volume is also large, it means that the main participants in warrant trading are retail investors. While the liquidity of this warrant is high, its price may be affected by market sentiment. At this time, if the number of street shares of the warrant is large, and the number of street shares accounts for more than or far more than 50% of its issuance, then the dealer's participation in the warrant will decline, and the ability to control the price of the warrant is relatively weak, and the price of the warrant is vulnerable to the emotions of public investors. If the market sentiment is high and the market has a large demand for the warrant, the potential increase of the warrant is expected to be higher than the actual increase calculated by the effective leverage ratio. However, once investor sentiment changes, many investors rush to sell warrants, and the potential decline of warrants may be higher than the actual decline calculated by the effective leverage ratio, which will bring greater losses to investors. If the trading volume is large and the street volume is small, it means that the dealer is actively maintaining the liquidity of the warrant, and the warrant price is not easily affected by the sentiment of public investors.

In a word, there is an internal relationship among the transaction, liquidity and street volume of warrants, and the three affect each other. Before investing in warrants, investors should comprehensively consider the trading volume, market volume and liquidity of warrants, judge the investment value and risk level of warrants, and select the most appropriate type of warrant investment.

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