□ Li Jin, Director of Faxing Securities (Hong Kong) Co., Ltd
Recently, the adjustment range of state-owned enterprise shares has been quite large, with more than 20% in general and more than 30% in individual shares. After the significant decline of the positive shares, there were many warrants out of the price or even deep into the price in the market, and there were quite a lot of street goods (market holdings). It can be inferred that many of these street goods were bought at a high level and have been deeply covered. If investors also bought warrants at a high level without stopping losses, it is really necessary to seriously consider how to deal with the covered warrants at present, rather than closing their eyes and passively defending them.
When the positive share price continues to fall and the warrant becomes more and more out of price, several factors affecting the warrant price will change:
First, the actual leverage rose. As the warrants become more and more expensive, the actual leverage will become higher and higher as the warrant price falls lower and lower, and thus the price fluctuation will become larger and larger. The warrant may have been a conservative discount security with moderate actual leverage before, but after the sharp drop of the positive shares, the warrant has become an out of price security, or even an immortal security, and its characteristics have changed to high risk and high return.
Second, the time value loss is increasing. Over time, the time value in the warrant will gradually be consumed, and when the warrant becomes more and more out of the price, the time value will be consumed more rapidly. Warrants may have been suitable for medium - and long-term holding, but after the sharp decline of positive shares, the loss of time value of warrants has become more and more serious, and it is not suitable to continue to wait.
Third, the bid ask spread has expanded. For warrants beyond the price, due to the increase of hedging risk, the issuer needs to maintain a large bid ask spread when providing quotation for warrants. Therefore, when the warrant follows the price of the underlying stock and becomes more and more out of price, the bid ask spread will also expand, for example, the spread will change from one to five, or even more than ten.
After integrating the above factors, it will be easier to understand why the author has always advocated that everyone should set a stop loss position when buying warrants. Even if they stick to the original view, investors should also adopt the corresponding horse swap strategy as the market conditions change. For example, in adverse circumstances, they can sell the external securities for horse swap to discount or in price securities, or sell short-term securities for horse swap to other warrants with longer maturities. This can not only maintain their view on the positive shares, but also achieve the purpose of adjusting to the circumstances and being flexible.
