□ GF Securities Product Innovation Department
Recently, the stock market has fluctuated repeatedly. Whether it is investing in stocks or warrants, the probability of investors being covered is increasing. For investors who are accustomed to taking the practice of lower cost downward spread in the stock market to unwind, when the position warrants record a book loss, investors are often easy to take a similar approach. Will this strategy be effective in warrant investment?
In the stock market, the cost sharing method is a common investment strategy. Its advantage is that the stock price only needs to rise to a price lower than the first market entry price in the future, and then the capital or profit can be recovered. However, this method has its limitations. It must be based on the premise that the overall investment environment has not deteriorated and there is no substantial change in the fundamentals of the stocks bought by overweight. Otherwise, investors will invest new funds to increase their positions, which will actually amplify the investment risk and easily fall into more and more dilemmas.
In fact, when investing in warrants, we adopt the method of spreading the cost down - continuously increasing the risk, which is much higher than when investing in stocks, and is not a suitable investment strategy for general investors. Because the price of warrants includes intrinsic value and time value, and time value will decline as warrants tend to mature (in previous articles in this column, we have repeatedly stressed that the speed of time value loss is not the same every day, and the more warrants approach the maturity date, the faster their time value loss will be). When investors hold subscription certificates for more time, it means that the positive share price needs to rise more to offset the loss of time value. The possible situation is that even if the positive shares rebound, the loss of warrant prices is faster. The so-called trade-offs will still outweigh the losses. This situation is most obvious in the case of out of price warrants. Therefore, unless investors have great confidence that the stock price will turn in the short term, they can consider adopting the amortized cost method to wait for unwinding, otherwise it is better to directly close positions and claim compensation.
Secondly, for call (put) warrants, a decline in the price of warrants generally means that the price of the underlying stock continues to decline (rise). While continuously increasing the price downward, a decline (rise) in the share price may turn the in price warrants into price equalizing warrants, and then fall from price equalizing warrants to out of price warrants, or even deep out of price warrants. If investors continue to increase the amount of investment, they may buy a large number of warrants that are close to maturity but out of the deep price. Such warrants are usually insensitive to changes in the price of the underlying shares. Even if there are large favorable changes in the underlying shares, the warrants may still underperform the underlying shares, or even fall instead of rising. Therefore, it is not appropriate to adopt the cost sharing strategy in the warrant market, which may even lead to the consequences of adding mistakes and annihilating the whole army.
In a word, it is risky to passively adopt the low-cost operation method to wait for unwinding. A more positive approach should be to set a stop loss position when investing warrants in the market, and admit defeat when the stop loss position is broken, rather than face losses with the psychology of holding positions for several months when saving. After all, only by retaining strength can we have a chance to turn around. (The article is only for reference, and the profit and loss caused by the investment based on it has nothing to do with it.) (If you have any comments or suggestions on this column, please send E-Mail to the editing mailbox cswarrants@126.com )
Shanghai Stock Exchange investor education column
