Hosted by Shanghai Stock Exchange Investor Education Center
□ GF Securities Product Innovation Department
One of the characteristics of warrants is that they can amplify the changes in the price of positive shares. When looking at the right direction, investors may use leverage to increase returns. However, many things are difficult to achieve the best of both worlds. The pursuit of leverage requires a price, which is the loss of time value.
As previously indicated in this column, the time value is a part of the warrant price. Imagine that if there is a flat or out of price warrant that expires today, its value will be zero. However, if there are still three months to the expiration date, the price of the shares may change in the direction beneficial to the warrant holders during this period, so that the warrants may become within the price in the end. Therefore, time is valuable, and time value is the value of the remaining time from now to the expiration date of warrants, which can be understood as the value of the possibility of investors to earn profits from their warrant positions.
Once the concept of time value is clear, it is not difficult to understand that warrants will have a certain time value before expiration, whether in the price, at the price or out of the price. When the maturity date approaches gradually, the price of the warrant will gradually return to its intrinsic value in theory, and the time value will also gradually decline - a phenomenon known as "time value depletion". Therefore, for investors holding warrants, time value loss is inevitable.
But investors should pay more attention to that the speed of time value loss is very different for warrants with different exercise prices or remaining time. If the warrant is in the price, the time value will be lost slowly due to the low proportion of time value; If it is an out of price warrant, the time value is the value of all warrants. If it is calculated as a percentage, the loss speed is faster. Especially for the out of price warrants that are close to the maturity date, the time value loss is the fastest. From the perspective of warrants that have expired before, the time value loss of warrants beyond the deep price in the last month before the expiration date can easily erode 5% - 10% of the warrant price every day. Therefore, some out of price warrants that are about to expire should not be held, because the trend of positive shares may not fully meet expectations during the period, and the loss of time value is very obvious.
For example, Wuliang YGP1 Although it has a low absolute price, it is in a deep out of price state, and the warrant price is all time value. At present, there are only 7 trading days left, even if the stock is positive Wuliangye The shares will continue to decline from tomorrow, and Wuliang YGP1 will not become within the price until the exercise period. If investors hold Wuliang YGP1, they should sell it as soon as possible to avoid losing all the invested funds. For investors who have not entered the market, avoidance is the best.
To sum up, the expiration time limit is the natural enemy of the warrant price, and the loss of time value is not conducive to investors. However, investors need not think that it is not worthwhile to lose time every day, because the key to profit is to see the trend of the right stocks. As long as it is not a very short-term out of price warrant, when the price trend conforms to its own forecast, the rising intrinsic value still has the opportunity to offset the time value loss of the warrant and ultimately make a profit. (The article is only for reference, and the profit and loss caused by investment based on it has nothing to do with it.)
