Ping An Securities Derivatives Department
According to the relationship between the exercise price of warrants and the market price of equity shares, warrants can be divided into three categories: in price warrants, out of price warrants and parity warrants. For the warrant, if the market price of the positive shares is higher than the exercise price of the warrants, it is an in the money warrant; If the market price of the positive shares is lower than the exercise price of the warrants, it is an out of price warrant. On the contrary, for put warrants, if the market price of positive shares is higher than the exercise price of warrants, it is an out of the money warrant; If the market price of the regular shares is lower than the exercise price of the warrants, it is an in the money warrant. Whether it is a call warrant or a put warrant, if the positive stock market price is just equal to the exercise price of the warrant, it is a par warrant. Due to the constant fluctuation of the positive share price, strict parity warrants are rare. Generally, warrants are always in or out of the price. So, what are the different meanings of in price securities and out of price securities for investors?
First, from the perspective of intrinsic value, the risk of in price warrants is lower than that of out of price warrants. In price warrants have certain intrinsic value, while out of price warrants have zero intrinsic value. Generally speaking, in price warrants are more likely to have exercise value upon expiration, while out of price warrants may return to zero upon expiration. Especially for some warrants beyond the deep price, there is a great possibility of returning to zero at maturity. For example, at present, the put warrants in the domestic warrant market are all out of the deep price, and there is very little chance that they will become in the price when they mature, so the risk is very high. The subscription certificates in the deep price are as follows Wuliang YGC1 The risk is much smaller.
Secondly, from the perspective of effective leverage, when looking at the future direction, out of price warrants will bring more potential gains. The effective leverage represents the percentage of warrant price change when the price of positive shares changes by 1%, which represents the actual magnification of the return on investment warrants relative to the return on investment in positive shares when the amount of capital invested in positive shares and warrants is equal. Generally, the effective leverage of out of price warrants is greater than that of in price warrants. In other words, when looking at the future direction, out of price warrants are more likely to amplify returns than in price warrants. However, investors need to be reminded that effective leverage is a "double-edged sword", which can amplify potential losses as well as potential gains. When you misread the future market direction, the losses of out of price warrants will also be greater.
Third, from the perspective of time value loss, the investment risk of out of price warrants is greater. The time value of the warrant will continue to wear down as the expiration date approaches. When the warrant expires, the price of the warrant will theoretically return to its intrinsic value, and the time value will gradually decline to zero. Therefore, when investors hold warrants, they also bear the loss of time value at the same time. The intrinsic value of the out of price warrants is zero, and the price of the warrants is all embodied in the time value. With the arrival of the maturity date, if the value of the warrants does not return to the inside price, the price of the warrants is bound to decline to zero. Therefore, the time value of the out of price warrants is lost faster than that of the in price warrants, and the position risk is higher.
In summary, the investment risk of out of price warrants is greater than that of in price warrants. Robust investors should choose in price warrants or some slightly out of price warrants for deployment. When looking at the direction of the future market, out of price warrants are usually more able to amplify returns than in price warrants. If risk preference investors have a clear directional judgment on the future market, they can choose some out of price warrants for short-term deployment, but investors should try to avoid some out of price deep warrants, especially those that are about to expire.
For more warrant information, please visit Ping An Securities warrant website http://www.pa18.com/warrants
