□ Financial Derivatives Department of CIC Securities
In the previous topic of this column, we introduced the investment strategy of unilateral purchase of call and put warrants. How to choose warrants for investment? In this topic, we will introduce in detail how to select warrants.
The first step in choosing warrant investment is to choose regular shares. The warrant is a derivative product, which is attached to the underlying stock. The price change of the underlying stock has an important impact on the price trend of the warrant. Pay attention to the positive shares of warrants, mainly the price change of positive shares, which requires investors to have a basic judgment on the future price trend of positive shares. Buy the warrant when the expected price rises; If the expected price falls, buy the put warrant. Focusing on the change of the underlying stock price should also be able to make a basic judgment on the change range and time of the underlying stock price, which helps warrant investors to grasp the investment opportunity and cost of warrants and screen warrants with appropriate exercise price and maturity date.
In addition to being affected by the underlying stock, the risk and return of warrants also largely depend on the terms of warrants. Therefore, warrant investors need to understand the terms of warrants after they have selected positive shares according to the basic judgment of the underlying stocks. This includes such elements as whether the warrant is a call or put warrant, European style or American style or Bermuda style, exercise price, duration and special agreement.
According to the selected positive shares, select the relevant warrants in the market for analysis, and investors can preliminarily determine the warrants to be invested. However, in order to select warrants that are suitable for investors, investors also need to comprehensively consider the leverage effect, residual maturity, liquidity and other factors of warrants.
An important factor that investors prefer warrant investment is the leverage effect of warrants. The greater the leverage effect, the better. The leverage effect has the same effect on the price change of warrants when the underlying stock rises or falls. Investors must select warrants with appropriate leverage according to their risk tolerance and investment needs.
Residual maturity is another important factor affecting the value of warrants. As time goes by, the time value of warrants will become smaller and smaller even if the price of underlying stocks remains unchanged. Risk appetite can choose warrants with short remaining time. Such warrants generally have small time value, low price and relatively large effective leverage ratio; The risk averse can choose the warrant with a long remaining time. The existence of the time value of such warrants can alleviate the change of the underlying stock price. The effective leverage ratio is not large and is not sensitive to the change of the underlying stock price.
The liquidity of warrants is a factor that investors must consider. Liquidity directly affects the difficulty of warrant investors to buy or sell warrants. For warrants with poor liquidity, the impact cost of buying and selling is higher, the price fluctuation of warrants is larger, and the risk of warrant investors is larger.
The selection of warrants is a process of comprehensive consideration. In addition to the above factors, the selection of warrant investment should also consider the impact of other factors such as extended volatility and premium rate. We will discuss this in the next few issues of this column. (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 )
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