Ping An Securities Derivatives Department
For the choice of warrants, investors will not only pay attention to the trend of related positive shares, but also pay attention to some valuation indicators of the warrants themselves to judge the investment value of the warrants. For example, the effective leverage and premium rate of warrants are two commonly used indicators. In this issue, we will briefly introduce the meaning and application of these two indicators.
The effective leverage measures the sensitivity of the warrant price to the change of the positive stock price, and represents the percentage of the change of the warrant price for every 1% change of the positive stock price. For example, if the effective leverage of a warrant is 2, the warrant should rise by 2% theoretically for every 1% increase in the positive shares. Theoretically, the level of effective leverage is related to various factors that affect the price of warrants, such as positive share price, extended volatility, residual maturity, etc. Generally, under the same other conditions, the higher the effective leverage level of warrants that tend to be out of the price, the higher the effective leverage level of warrants with shorter residual maturity.
The so-called premium rate means that if you buy warrants at the current price and hold them to maturity, you need to increase (subscription certificate) or decrease (put certificate) the percentage of the positive shares so that investors can maintain their principal, that is, neither gain nor loss. For example, the premium rate of a subscription certificate expiring three months later is 20%, which means that the subscription certificate is bought and held at the current price. When it expires three months later, as long as the positive stock rises by more than 20%, investors can make profits. As the premium rate level is affected by the market price of warrants, all factors that affect the market price of warrants will also have an impact on the premium rate. For example, extension amplitude, residual maturity, etc.
The premium rate represents the risk status of warrants to a certain extent. Under the same other conditions, the higher the premium rate of the warrant, the less likely the warrant is to be principal guaranteed when it expires, and therefore the greater the risk of the warrant. In addition, for the warrants with high premium rate, the trend of the warrants may be less relevant to the positive shares, and the warrants are prone to lose the positive shares. Therefore, for investors, the warrants with high premium rate are more uncertain. When choosing warrants, investors should try to choose warrants with a low premium rate to control risks.
The choice of effective leverage varies from person to person. Because effective leverage is a double-edged sword, it will also amplify the potential losses of investors while amplifying the potential gains of investors. For investors who pursue high returns and have strong risk tolerance, they can choose warrants with high effective leverage, while for investors with weak risk tolerance, it is more appropriate to choose warrants with low effective leverage.
In addition, there is a certain relationship between effective leverage and premium rate. Generally, warrants with high effective leverage have a high premium rate (usually out of price), while warrants with low effective leverage have a low premium rate (usually in price). Investors need to weigh the two and try to choose warrants with low premium rate and high effective leverage. (The article is only for reference, and the profit and loss caused by investment based on it is irrelevant)
Sina statement: The content of this article is purely the author's personal opinion, which is only for investors' reference and does not constitute investment advice. Investors operate accordingly at their own risk.
