Series of Lectures on Covered Warrants (XIV) Considerations before Investment in Covered Warrants
Ping An Securities Derivatives Department
As a financial derivative product, covered warrant attracts investors' attention with its unique leverage investment characteristics. Opportunities are always accompanied by risks. Before investing in covered warrants, what arrangements should investors make and what factors should they consider? In this issue, we will briefly discuss this topic.
First of all, before investing in warrants, it is necessary to judge the investment opportunity and determine the funds to be invested at different times. Most investors' losses do not come from choosing the wrong warrants, but from choosing the wrong time to enter the warrant market. What's more, they invest too much money in the warrant market at the wrong time, and then do not have enough risk management awareness. It is better to grasp the investment opportunity first and determine the acceptable risk level than to talk about risk management after entering the wrong market. The best time for warrant investment to enter the market is when the market sentiment has an obvious upward or downward trend and the volatility of related positive shares has stopped falling and rebounded. At this time, investors have the opportunity to earn the direction and volatility of positive shares. To judge the fluctuation and market sentiment, refer to the macro data of the market.
Secondly, we should choose appropriate investment objects. Investors should consider the following aspects when choosing warrants. First, we need to analyze positive shares. Some warrants may be cheap, but if the expected stock price performance is not ideal, it may not be a good investment. Conservative investors should consider index covered warrants or warrant portfolios. Investors should collect and digest relevant financial information from the media and consider their own risk tolerance. The second is to measure the degree of risk that you can bear and the planned investment period. The third is to compare warrants in the market. Investors should compare the detailed rules and terms of warrants, warrant prices and technical information and make a detailed analysis. In particular, compare the extension amplitude of warrants. If the warrants have the same exercise price and remaining period, investors should choose the warrants with the lowest extension amplitude.
Third, investors need to strengthen their awareness of risk management. investment shares The risk only lies in the decline of the stock price, but the risk factors of warrants need to be considered much more. Even for the warrants of the same stock, different warrants may make investors suffer different degrees of potential losses due to different technical risks. The technical risks of warrants mainly come from three aspects: the sensitivity to changes in the price of regular shares, the sensitivity to changes in the extension amplitude, and the time value loss. First, the sensitivity of warrants to equity is usually measured by effective leverage, which is where the leverage effect of warrants lies. In particular, investors should be reminded that effective leverage is a double-edged sword, which amplifies the potential gains of investors as well as potential losses. Second, the extended amplitude is one of the factors affecting the level of warrant pricing. Generally speaking, when the difference between the extension amplitude of individual warrants and the short-term historical amplitude of equity stocks expands, the opportunity and amplitude of the reduction of the extension amplitude of individual warrants will increase. Third, another major risk of warrants is that the value decreases with the shortening of the residual maturity. Warrants are different from stocks. They have a certain duration, and as the maturity date approaches, the time value part of the warrant value will slowly wear down to zero. Therefore, before entering the market, investors must be clear about the extent to which their losses may be magnified. If it exceeds the acceptable range, it is better not to be a blogger.
For more warrant information, please visit Ping An negotiable securities Warrant website http://www.pa18.com/warrants
