When there is a certain distance from the maturity date, it is not advisable to choose warrants only because of the large premium rate
Ping An Securities Derivatives Department Zhang Junjie
The premium rate is a very important risk indicator of warrants. It indicates how much (percentage) the positive shares need to change in a favorable direction when the warrants are bought at the current price and held to maturity, so that investors can neither gain nor lose. For example, the current premium rate of Guoan GAC1 is 89.46%. If investors buy Guoan GAC1 at the current price and hold it to maturity CITIC Guoan The stock price must rise by 89.46% before investors can maintain their capital.
The premium rate is usually a positive number, mainly because the warrant has not only intrinsic value, but also time value. Many investors regard premium rate as the most important indicator of warrant selection, and believe that warrants with low premium rate have more investment value than warrants with high premium rate. So, is that the case? What are the problems with warrant selection based on premium rate indicators, and what should investors pay attention to?
First of all, different warrants cannot simply judge their valuation level by comparing the premium rate. The premium rate level of warrants is related to the volatility of equity, the residual maturity of warrants, the degree of both inside and outside the price and other factors. For the warrants of the same stock, the longer the remaining period of the warrants, the higher the premium rate will generally be. Taking Shenzhen Development SFC1 and Shenzhen Development SFC2 as examples, the remaining maturity of Shenzhen Development SFC1 is less than 2 months, while the remaining maturity of Shenzhen Development SFC2 is close to 8 months. Based on the closing price on Friday, the premium rate of SFC1 of Shenzhen Stock Exchange is only 0.95%, while the premium rate of SFC2 of Shenzhen Stock Exchange is 18.20%. The premium rate of Shenzhen Development Bank SFC2 is much higher than that of Shenzhen Development Bank SFC1, but it cannot be considered that the valuation of Shenzhen Development Bank SFC2 is higher than that of Shenzhen Development Bank SFC1.
It should be noted that the premium rate of in price warrants approaching maturity is often low due to their small time value. When the warrants expire, the premium rate is close to zero. The premium rate of warrants beyond the deep price is also high even when they are nearing maturity. for example CIMC ZYP1 At present, it is outside the depth price, and only a few trading days remain. Even if the warrant price is close to 0, its premium rate will be close to 70%.
Secondly, we cannot simply believe that negative premium warrants have investment value, that is to say, it is not advisable to select warrants only by negative premium. If the premium rate of the warrant is negative, it means that the market price of the warrant is lower than its intrinsic value, and the value of the warrant is undervalued. However, it is not certain whether investors can outperform the positive shares when buying negative premium subscription certificates. If they misread the positive shares, they may also lose money, which depends on the investment period and the specific way of negative premium return.
For warrants with negative premium, the negative premium rate will return to zero when the warrants expire. There are several ways to return. First, both positive shares and warrants rose, and the increase of warrants was greater than that of positive shares; Second, both regular shares and warrants fell, but the decline of warrants was less than that of regular shares. It may also be in the form of regular shares falling or regular shares rising while warrants remained unchanged. In a word, negative premium warrants can always outperform positive shares if they are held to maturity. Therefore, if investors intend to hold positive shares until the warrants expire, it is more cost-effective to buy negative premium warrants than positive shares. Of course, this does not mean that replacing positive shares with negative premium warrants is a sure way to make a profit. If positive shares are misdirected, it is also possible to lose money, but in this case the loss is smaller than buying positive shares.
If investors do not intend to buy and sell warrants to maturity, but mainly make short-term investments (holding warrants for a short time relative to the remaining maturity of warrants), the reference value of premium rate is not significant. In other words, the premium rate is not a good short-term indicator. This is mainly because in the short term, even a very low premium rate may remain stable or even decline further for a period of time, making investors unable to enjoy the benefits of the return of premium rate. Let's take MaSteel CWB1 as an example. On August 7, 2007, the premium rate of Masteel CWB1 was -6.07%, the closing price was 5.669 yuan, and the stock price was 9.58 yuan. As of August 31, 2007, the closing price of Magang CWB1 was 5.886 yuan, with a premium rate of - 13.63% Masteel The price is 10.67 yuan. During this period, the yield of Masteel CWB1 was only 3.83%, while the yield of equity was 11.38%. The yield of investment warrants is far lower than that of regular shares, which is mainly due to the further decline of the premium rate of Maanshan Steel CWB1.
In summary, the valuation level of warrants with different terms, or even the same warrant at different times, cannot be judged by simply comparing the premium rate. A negative premium means that the value of the warrants is undervalued. If the investors plan to hold the positive shares to expire, it is cheaper to hold the corresponding warrants than the positive shares. For short-term trading and even intraday trading investors, the premium rate is not an ideal indicator, and it is not advisable to choose warrants only by negative premium.
