Ping An Securities Derivatives Department
The intrinsic value of warrants refers to the gains that can be obtained from the immediate exercise of warrants. Although intrinsic value is the main factor determining the price of warrants, it is not the only factor. In reality, warrants are usually traded at a price higher than their intrinsic value, which is particularly obvious for parity warrants and out of price warrants. Although the intrinsic value of these two types of warrants is zero, they are always bought and sold at a price higher than zero before maturity. This is because there is also an important part in the price of warrants, namely the time value of warrants.
For warrants with a positive premium rate (usually, the premium rate of warrants should be greater than zero), its time value can be understood as the appreciation of the call (put) warrants that may be caused by the rise (fall) of the positive shares between now and the expiration date of the warrants. Therefore, the time value of warrants is essentially the value of the earning potential of warrants before their expiration. We know that the buyer of warrants can obtain corresponding rights by paying royalties, that is, only by bearing limited losses, it is possible to obtain a much higher return. This means that the positive share price has the same rise and fall, and the change of the warrant value is asymmetric. This asymmetry makes the total value of the warrant exceed its intrinsic value, which is the fundamental source of the time value of the warrant.
For warrants with a positive premium rate, the time value of the warrant is equal to the value of the warrant minus its intrinsic value. For example, the market price of the positive shares is currently 10 yuan, and the transaction price of the warrant with the corresponding exercise price of 8 yuan in the secondary market is 4 yuan, then the intrinsic value of the warrant is 2 (10-8=2) yuan, and the time value is 2 (4-2=2) yuan.
With other conditions unchanged, the time value of warrants will decrease with the decrease of their remaining maturity. This property is called time value loss of warrants. This is because as the residual maturity decreases, the earning potential of warrants gradually decreases. In order to quantify the time value loss of warrants, we generally use the time value sensitivity index.
Time value sensitivity is used to measure the change of warrant price over time. It is the ratio of warrant price change to time change, usually expressed by Theta. As time goes on, the time value of warrants will become smaller and smaller as the warrants get closer to the maturity date, so the Theta value is almost always negative.
In addition, the time value sensitivity is not unchangeable, and its speed of change is related to the degree of inside and outside the price of warrants and the length of residual maturity. The more the certificate of title goes beyond the price, the less the remaining period, the faster the time value will be lost, and the greater the absolute value of Theta will be. Expiring Wuliang YGP1 As the remaining maturity decreases day by day, the time value will be lost faster and faster until it returns to zero. Therefore, it is very risky to hold such deep foreign securities as Wuliang YGP1, which is approaching its maturity, and investors should pay attention to it.
For more warrant information, please visit Ping An Securities warrant website www.pa18.com/warrants
