Put warrants investment in knowledge great resolution Money Tips

Category: Money tips Release Date: 2006-04-13

Moderator Sally teacher's words:

This week, New Steel and Vanadium (000,629), and Wuhan Steel shares (600,005) has announced the split share structure reform, brochures, in addition to Major Holders for bids, the above two companies have launched a put warrant, this is the first appearance since the start of stock reform of the put warrants program. How should investors put warrants the investment value and investment risk? To this end, we interviewed Jinxin Securities Warrants Mr. Li Junfeng, principal researcher.

Xiao Zhang Teacher: Please brief analysis of the appearance of the New Steel and Vanadium and Wuhan Iron and Steel shares of put warrants program.

Li Junfeng: New Steel and Vanadium and Wuhan Iron and Steel shares in the program put warrants are tradable share reform as a complementary measure is introduced, may be regarded as part of the price. Through the put warrants, which can effectively protect the interests of shareholders of tradable shares, and can provide the market with effective risk hedging instruments.

In short, after Baosteel and Yangtze Power launched warrants are warrants. This time New Steel and Vanadium put warrant issuer is its first major non-tradable shareholders Panzhihua Iron & Steel Co., Ltd., to shareholders of record on implementation of the program registered in the register of shareholders of tradable shares to distribute free of charge for every 10 shares of 2 duration 18 On an exercise price of 4.62 yuan, European-style put warrants. But the new Steel and Vanadium manual split share structure reform also failed to determine warrant listing date, listing date yet to be after the approval of the Shenzhen Stock Exchange announcement.

Wuhan Steel shares in substance as a butterfly warrants, both warrants, but also put warrants. Its program for the first largest shareholder of the outstanding shares of Wuhan Iron and Steel Group to shareholders 284.4 million were put warrants, that is, shareholders of tradable shares for every 10 shares held by the outstanding shares of Wuhan Iron and Steel Group, will receive payment of 1.5 were put warrants, which each put warrants the price can be 3.00 to the Wuhan Iron and Steel Group's sale of a shares. In its share reform program also includes American-style warrants Plan: Wuhan Iron and Steel shares issued to all shareholders, 117,570 million warrants that the date of registration of shares of all shareholders of record holding 10 shares for every 1.5 shares will be offered copies of warrants an exercise price of 2.90 Yuan / copy. Investors access to this part of the warrants may at any time request the right lines.

Xiao Zhang Teacher: Put warrants and the warrants previously the biggest differences?

Li Junfeng: Call Warrant gives the holder a right yes but not the obligation, to exercise the purchase price of the underlying assets within a specified period of time. Accordingly, the put warrant gives the holder means a right but not the obligation, to exercise price in the sale of related assets within a certain period.

The value of put warrants can also be applied to BS model to the valuation of warrants which point there is no obvious difference. The only difference is that warrants underlying the shares rose by profit, while the put warrants through the profit decline in the underlying shares.

Xiao Zhang Teacher: How can investors make flexible use of put warrants and call warrants to achieve the risk arbitrage?

Li Junfeng: steady investors can flexibly adjust the put warrants and stock portfolio to achieve different investment strategies, such as when investors look at the empty New Steel and Vanadium Wuhan Steel shares, or may choose to hold only the right to put warrants expired OK or mid-realization; when investors look at many shares of Wuhan Iron and Steel New Steel and Vanadium, or, it can only hold shares of Wuhan Iron and Steel New Steel and Vanadium, or stock positions, while the holdings in anticipation of when the market slowed, put warrants to hedge the short-term market risk.

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Investors may also consider the same time hold shares of Wuhan Iron and Steel New Steel and Vanadium, or with a combination of put warrants to change the original characteristics of the portfolio's risk-adjusted returns, or even risk-free arbitrage. For the short-term investors, because the C of E T +0 trading rules makes the investment in time risk substantially reduced, the leveraged investment properties warrants further enhanced its speculative value, a put warrant is also a more ideal investment target.

When the stock price above the exercise price, the warrant investor to get a profit from the price rise, when the stock price less than or equal to line the right price, will lose the cost of warrants to subscribe for warrants investors want to profit through stock up . On the contrary, put warrants are exercisable at a price lower than when the share price when the stock price to fall from a gain, when the stock price is higher than or equal to the exercise price, the investor will lose the cost of put warrants, put warrants investors want to short the stock profit.

Xiao Zhang Teacher: JTB1 listed Baoshan Iron and Steel after the ups and downs of the ups and out of the trend, but also led many of the warrants were not familiar with the investor suffered a loss, how should the risk of put warrants that?

Li Junfeng: the risk of put warrants depends primarily on the underlying shares the direction of future stock price, time value and implied volatility and other factors. For put warrants, the greatest risk comes from the underlying stock in the future lead to a sharp rise in prices of warrants.

Baosteel has been listed warrants from the point of view, the market for a more intense speculation warrants; while New Steel and Vanadium duration of the C of E is only 1.5 years, maturity of the warrants will be executed or canceled. If you accidentally far higher than the actual value of the site of involvement, then the investors may face greater losses. In addition, the New Steel and Vanadium warrants was only 117 million copies in circulation, lower than the circulation of Baosteel warrants, New Steel and Vanadium warrants may not be carried out at the same price level, a larger number of buy or sell, there is a certain degree of mobility risk. These risk factors are the investors before making investment decisions need to be fully considered.

Xiao Zhang Teacher: Put Warrants hedging strategy for how to?

Li Junfeng: Put Warrants provide investors with the greatest convenience is that provides a possibility to make money in down market. Bearish investors only by buying put warrants do not have other hedging strategies, investors need to bear the greatest risk is the price of put warrants. As the put warrants its own leverage, investors can control the positions to hedge their risks. Of course, the emphasis on speculative traders can increase the position achieved by the lever function of warrants.

To strive for long-term return on investment, investors may choose to hold a number of high-quality blue chips, in order to gain from dividends and stock price long-term growth. But sometimes large adjustments in the face of market, investors may face a dilemma: rush selling price of shares may miss the pick-up opportunities, but fear held by the big city, then continued to fall, so that the hands may have been profits have been dwindling.

At this time, investors can take advantage of Put Warrant handheld hedge portfolio risk, while maintaining the original position, on the other hand, if the stock does go down when the put warrant but also to protect portfolio value, the situation is like for portfolio Like insurance (the cost of warrants as payment of insurance premiums).

Assume that investors have to hold shares of Wuhan Iron and Steel New Steel and Vanadium, or stocks, but the fear that their share prices continued to fall within a short space, he would consider purchasing shares of Wuhan Iron and Steel New Steel and Vanadium, or the put warrant. Through this strategy, if the shares of Wuhan Iron and Steel New Steel and Vanadium, or shares have fallen, an increase of a put warrant will be offset by the loss of part of the price drop, if the shares of Wuhan Iron and Steel New Steel and Vanadium, or shares in investment during the period up instead of down, Well, from the shares can be offset by profits earned by a put warrant investment losses.

Xiao Zhang Teacher: Since the put warrants provide a short channel, this will induce investors to hold the warrants by the strength of the secondary market price in order to pressure from the company's largest shareholder at a higher "right price" mean?

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Li Junfeng: From theory to issue put warrants should be to guarantee that future performance and growth of the blue chips, while the holders of such shares of firms often is a short powerful institutional investors.

From the Hong Kong warrants market experience and market point of view, put warrants on the underlying stock does not constitute a shock. On the mainland market, the investor, if short, will be taking the interests of the company's major shareholders, which means shareholders will pay the higher of the price, which also makes the company issuing such warrants must make a careful choice . In other words, issuing such warrants will also be confident about the prospects for their company's stock price has been grossly underestimated and the current company. The company issued put warrants are listed steel companies also confirmed this point.

It is worth mentioning that, in the settlement of the introduction of tradable warrants tool will test the agency valuation and pricing power. In fact, in the process of resolving the split share structure accompanied by the original valuation of system failure and the reconstruction of a new standard in terms of investor with the company through the consultation exercise price and the right line of the ratio, the capacity of utmost importance.

In Hong Kong warrants market transaction warrants the distribution of the total amount currently to about 83% of warrants, 17% for the put warrants.

Xiao Zhang Teacher: What is the number of put warrants to purchase in order to hold shares in the risk of overwriting it?

Li Junfeng: Suppose investors have to hold 2,000 shares of Wuhan Iron and Steel New Steel and Vanadium, or shares of stock, then the number of copies of whether he should buy a put warrant before they can fully hedge 2,000 shares of Wuhan Iron and Steel New Steel and Vanadium, or shares of the risks? At this point, we can the use of warrants in the calculation of the Delta. The basic concept of the delta when the underlying asset price changes, one dollar when the warrant theoretical price changes. Suppose investors have a choice of put warrant warrants delta 0.04 (calculated according to the actual leverage ratio), as long as the number of shares held by being divided by the warrants to the delta can be purchased that recognition Put copies in order to fully hedge 2,000 shares of Wuhan Iron and Steel New Steel and Vanadium, or the risk of shares, investors should purchase about 50,000 shares of Put Warrant. In theory, if there are shares really dropped, put warrants can be fully offset by the loss of its ordinary shares, but if the underlying shares rise not fall, is the profit share will be made to offset the loss of a put warrant.

Why do we say that only in theory? Because of the delta is not a constant. Delta values will be as positive changes in share price increase or decrease. Therefore, if the investor to maintain the effectiveness of insurance, we must always calculate the delta of the data amount to buy or sell the put warrant. In addition, the above-mentioned is "100% insurance" strategy, but in general, we recommend investors to use less "full protection" approach. If investors are bearish stock, then why not sell directly to the underlying shares?

Further question is, "insurance period" as long as necessary? It would depend on the views of investors in the afternoon. Put Warrant insurance policy aim is to investors expect a positive stock "short" down, but "long-term" is up. If investors believe that stock "short" adjustment will soon end, they will first sell the put warrant arbitrage, to be picked up again when the stock price more than a profit to make.

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