Use the hedge value to calculate the return of warrants
http://www.sina.com.cn 05:31, May 10, 2007 China Securities Journal
□ Li Jin, Director of Faxing Securities (Hong Kong) Co., Ltd
Warrants can provide leverage effect, so as to achieve the goal of "getting big from small". The terms of each warrant are also different. Warrants have different responses to changes in the price of equity shares. To measure the sensitivity of warrants to positive shares, we can refer to two data: offset value and actual leverage.
The offset value reflects how much the warrant price will change in theory when the positive share price changes. The counter value of the subscription warrant is positive, ranging from 0 to 100%, and the counter value of the put warrant is negative, ranging from 0 to - 100%. When the warrant is more expensive, the counter value is closer to 0, while when the warrant is more expensive, the counter value is closer to 100% (- 100% for put warrants).
To calculate how much the price of warrants will rise or fall, investors can simply multiply the change of expected positive shares by the contra value of warrants. Assume that the offset value of a call round is 40% and the share exchange ratio is 10 to 1. If the positive shares rise by 1 Hong Kong dollar, the warrant price will theoretically rise by 0.04 Hong Kong dollars (1 × 0.4 ÷ 10).
The following is an example of two HSBC warrants with different terms. The expiration dates of warrants A and B are August 1 and July 30, 2007, respectively, and the exercise prices are HK $136.3 and HK $151.3, respectively. The warrant prices are HK $1.14 and HK $0.242, respectively. The offset values are 87% and 36%, respectively.
Assuming that 1 million shares are purchased respectively, if the positive shares rise by HK $1, theoretically, a profit of HK $87000 (1 × 0.87 ÷ 10 × 1000000) can be obtained from the purchase of HSBC card A, while the profit from the purchase of HSBC card B is HK $36000 (1 × 0.36 ÷ 10 × 1000000), which is significantly less than that of HSBC card A.
However, the cost of buying 1 million HSBC certificates A is HK $1.14 million, while the cost of buying 1 million HSBC certificates B is only HK $242000. Calculated as a percentage, the return rate of warrant A is 7.6%, and the return rate of warrant B is 14.9%. Therefore, from the perspective of cost-benefit, the rate of return earned by investing in HSBC Securities B is actually higher.
