The Evaluation Method of Net Capital Flow of State owned Enterprise Warrants and Its Enlightenment
When investors invest in state-owned enterprise covered warrants, they should first analyze the value of the warrants themselves, mainly analyzing the implied volatility, the trend of positive shares, premium rate, effective leverage, etc. In addition, the net capital flow of warrants can provide the market with information to judge the trend of warrants, which is also an important factor to consider.
The net capital flow can be calculated by the change of warrant trading volume. Trading volume is the total amount of warrant transactions in a period of time, indicating the active degree of investors in warrant transactions. The trading volume refers to the total number of warrants traded on the day, while the market volume refers to the number of cumulative warrants held in the market (i.e. outside the issuer) after the close of the day, i.e. the number of cumulative overnight positions in the market. The simpler way to evaluate the net capital flow of covered warrants is to estimate the confidence of investors in positions in related positive shares from the absolute value and the market demand for related certificates. From January 2 to February 28 this year, about HK $2 billion was net inflow into the overall China Life call warrants, and another HK $63 million was net inflow into the overall China Life put warrants. From the flow of funds for the subscription and put warrants of relevant warrants, it reflected that before and after China Life's "blue dye", more investors had a good view of China Life and held relevant warrants overnight, so the funds for relevant warrants flowed in, The quantity shows an increasing trend. During the period, about 18 million yuan was net inflow into the overall CCCC warrant. Similarly, many investors are optimistic about CCCC, so they hold relevant warrants overnight, which reflects their confidence in positive shares.
First, if the net capital flow of covered warrants is combined with the trend analysis of positive shares, the market strength of related warrants can be indirectly estimated. The market strength of relevant warrants can be indirectly estimated by the change of capital and the analysis of the trend of positive shares. Simple estimates can be made. If the market stock of relevant warrants increases and the positive shares also increase, the market strength of relevant warrants can be estimated to be better; On the contrary, if the market price of relevant warrants increases, but the positive shares do not rise but fall, it is estimated that the market strength of relevant warrants may be poor. Compared with the overall China Life Insurance and CCCC warrants, the former has about 8.738 billion warrants in total, up about 5.809 billion compared with January 2 this year, with a cumulative increase of 66%. During the period, the positive shares fell from 26.55 yuan to 20.95 yuan, with a cumulative decrease of 21%. When the positive shares fell and the market shares of the relevant warrants increased, it is estimated that the market strength of the relevant warrants will decline accordingly.
Second, if the net capital flow of covered warrants is combined with the overall market atmosphere and hot money analysis, it can indirectly estimate the extent to which relevant warrants are affected by market sentiment and market forces. From the perspective of capital flow of warrants, when the capital flows in and the amount tends to increase, it indicates that investors actively hold the warrants overnight, that is, the faster the warrants increase, the more the relevant warrants will be affected by market sentiment. Street goods refer to the amount of warrants held by the public. The size of street goods reflects the number of warrant participants, which also reflects investors' confidence in the future market. With the increase of the market volume, the influence of the activities of the issuer (commonly known as the dealer) on the transaction of warrants has declined, so the control over the price of warrants is relatively weak, and the price of warrants is more affected by market sentiment. At this time, if driven by positive stock information, driven by high market demand and high investor expectations, the potential increase of warrants is expected to be higher than the increase calculated by effective leverage ratio. However, once investor sentiment changes, many investors scramble to sell warrants. Due to oversupply in the market and disappointed selling by investors, the potential decline of warrants is higher or higher than the decline calculated by the effective leverage ratio, so the volatility of warrants increases.
Third, if the net capital flow of covered warrants is matched with the implied volatility of related warrants, historical volatility trend, market supply and demand and other changes, the potential changes in implied volatility of related warrants can be indirectly estimated. For the possibility of changes in implied amplitude of relevant warrants, you can check the difference between high and low implied amplitude of relevant warrants in the past 5 days; As for the possibility of implied amplitude change of relevant certificates, you can check the historical amplitude change of relevant positive shares. If the historical amplitude of positive shares rises, and demand exceeds supply with over-the-counter options of positive shares, the implied amplitude of relevant certificates or there is an opportunity to rise. On the contrary, everything goes against the plan. Because the implied volatility of warrants is not only affected by the historical volatility of positive shares and the implied volatility of related derivatives both inside and outside the market, but also by market sentiment, especially the implied volatility of individual warrants. With the influx of a large amount of hot money into a warrant, investors are in a high mood to buy and sell warrants, and the transaction is active, with an upward trend in implied volatility; However, if the capital of a warrant is in an outflow state, investors lack enthusiasm for warrant trading, and the implied volatility has a downward trend. Implied volatility refers to the market's expectation of the future volatility of positive shares, and is one of the important factors affecting the price of state-owned enterprises' covered warrants. When the market generally predicts that the volatility of positive shares will increase during the duration, that is, the implied volatility of warrants will rise. At this time, even if the price of positive shares remains unchanged, the price of warrants will also rise; On the contrary, when the market generally predicts that the volatility of the positive shares will decrease, that is, the implied volatility of the warrants will fall. At this time, even if the price of the positive shares remains unchanged, the price of the warrants will also fall.
