Ping An Securities Derivatives Department Zhang Junjie
When the market or individual stock has been falling for a long time, or has fallen rapidly in the short term, and the technical indicators are severely oversold, many investors tend to buy stocks to gain a rebound. In fact, in this case, it is more flexible to use subscription warrants to rebound, and the gains may also be greater.
First, warrants have leverage effect. Generally, when the stock is rising, the increase of the subscription certificate is larger than that of the stock.
Secondly, T+0 trading is adopted for warrants. Once investors find the wrong direction after the rebound, they can stop loss and exit in time to avoid the risk of continuing to lose money the next day. For stocks, since it is a T+1 transaction, investors cannot sell stocks on the same day after buying them. If after buying stocks, they continue to fall sharply on the same day, or even the next day, investors will face large losses. If investors buy warrants, they can stop losing on the same day and avoid expanding losses on the next day.
Therefore, compared with regular shares, it is more advantageous to use subscription warrants to rebound. So, what should investors pay attention to when using subscription warrants to rebound?
First, try to choose warrants with lower valuation. Although the trend of warrants largely depends on the trend of positive shares, there are many factors that will affect the trend of warrants in practice. Among them, the valuation level of warrants has a greater impact on the trend of warrants. Generally, if the valuation level of warrants is low, when the positive shares rebound, the increase of warrants may exceed the theoretical increase calculated according to effective leverage. If the valuation level of the warrants is high, the increase of the warrants may be lower than the theoretical increase, or even the positive shares may rise, but the warrants may fall. Therefore, investors should try their best to choose warrants with low valuation, especially those with high negative premium, when striving for rebound.
Secondly, according to their own risk tolerance and grasp of the market and the trend of positive shares, choose the right size of effective leverage warrants. How much leverage should we choose? This largely depends on the risk tolerance of investors and their grasp of the market and the trend of positive shares. If investors have strong risk tolerance and are more confident about the rebound of positive shares, they can choose subscription warrants with greater effective leverage to maximize returns. However, investors need to be reminded that effective leverage is a "double-edged sword". If investors misread the direction, subscription warrants with large effective leverage often bring about large losses. Therefore, if investors misjudge, they should stop loss in time.
