GF Securities Product Innovation Department
From many examples of warrant investment failures, investors' losses caused by buying doomsday warrants account for a large proportion, but some investors are still unclear about why doomsday warrants should not be touched. This article will analyze the characteristics of such warrants to help investors understand the risks involved.
Generally speaking, doomsday warrants refer to those within two months from the maturity date. According to the relationship between the exercise price of the warrants and the price of the underlying shares, the doomsday warrants may be in the in price, out of price or even. If the end day warrant is in the price, it means that investors have the opportunity to recover part of the "intrinsic value" when the warrant expires. If the end day warrant is out of the price, it means that the warrant does not have intrinsic value. The price of the warrant is all time value. Since it is about to expire, the time value is lost quickly. If the price of the underlying stock fails to change in a favorable direction as expected by investors in a short time, it rises to higher than the exercise price of the warrant (call warrant) or falls to lower than the exercise price of the warrant (put warrant), The investor will lose all the capital invested, so the risk of out of price doomsday warrants is higher than that of in price doomsday warrants.
Generally, for the end day warrants beyond the tenth price, even if there is a favorable change in the price of the related positive shares, due to the rapid loss of time value, the positive factors of the change in the price of the positive shares may be offset, or even the price of the warrants will not rise but fall. If the doomsday warrants are to become suddenly unpopular, there must be something unexpected in the market. For example, the sharp change in the price of the positive shares changes the doomsday warrants from out of the price to in the price. However, because there is not much time before the expiration date, there is little chance for the positive shares to become suddenly unpopular in a short time, so investors have a high risk of buying such warrants. For example, recently, some investors bought and sold China Southern Airlines JTP1 with the mentality of "Bo Yi Bo". They were greedy for their "small cost and big profits". The absolute transaction price was low, thinking that they could strive for greater potential returns with less capital. However, the fact is that, based on the closing price on May 28, the price of China Southern Airlines JTP1 was 0.519 yuan, while Southern airlines The stock price is 10.84 yuan. Compared with the exercise price of China Southern Airlines JTP1 (7.43 yuan), China Southern Airlines JTP1 has been in a deep out of price state and is less than one month from the expiration date (June 20, 2008). It can be expected that its time value loss has entered an accelerated stage. For investors holding China Southern Airlines JTP1, if they do not sell it before the last delivery date (June 13, 2008), The fund that may lose all investment eventually. In addition, due to its low absolute price, it is easy to be favored by short-term funds in the market. In addition to the T+0 mechanism of warrants, the price of warrants may fluctuate very sharply in the day, which is not easy for most investors to cope with. Investors holding short-term speculation strategies should strictly observe the stop loss discipline and avoid holding positions overnight.
If the doomsday warrant is in the price, is there no risk? Actually not. If the doomsday warrant is in the price, it depends on its in price degree and premium. For example, the SFC2 of Shenzhen Development Bank, which also expired in June, is currently within the price. If the closing price on May 28 is 8.905 yuan, the share price of Shenzhen Development Bank needs to rise 6.63% (premium) to 27.905 yuan before the expiration date, so that the SFC2 of Shenzhen Development Bank has the intrinsic value corresponding to its current price. Therefore, investors can only consider moderate participation unless they expect the price of the positive shares to reach or be higher than the corresponding price before the expiration of the warrants and can bear higher risks. However, it is worth noting that according to the announcement, SZF SFC2 has started exercising on May 16, and the exercise and transaction are carried out simultaneously on the trading day between May 16 and June 20. At present, SZF SFC2 is similar to an American style warrant. Theoretically, the premium rate should be close to zero, but recently the premium of Shenzhen Development SFC2 is more than 6%, which means that the current market price of the warrant is higher than its intrinsic value. If investors really like Shenzhen Development shares and want to invest, they can directly buy the stock itself in the secondary market without having to participate in the purchase of warrants.
Time is the enemy of warrants by nature, and the value of doomsday warrants is more significantly affected by time. Investing in such warrants is like competing with time, which requires higher risk. So why don't investors focus their time and energy on other warrants with lower risk and longer residual duration?
