Category: Money tips Release Date: 2006-03-18
The main factors that determine the value of warrants are: the underlying asset price, the underlying asset price volatility, time warrants and the exercise price, the market interest rates and cash dividends and so on.
1. The underlying asset price
As the warrants are based on underlying assets arising from derivative products, the underlying asset price for determining the issue price and the transactions warrants the most important factor in price movements. The higher the price of underlying assets, which means the subscription (put) warrants the implementation of the C of E holders of the proceeds from the bigger (small). Therefore, the higher the subscription price of the underlying asset (put) warrants its issuance or transaction prices are often higher (lower).
2. Warrant exercise price
In contrast with the underlying asset prices, warrants the implementation of agreed upon the higher price of the subscription (put) warrants its issuance or transaction prices are often lower (high).
3. Warrant is valid
Warrants longer valid, the higher the time value of warrants, the warrants issue price or trading in general, the higher the price.
4. The underlying asset price volatility
The underlying asset price volatility, the greater the underlying asset prices abnormally high (low) the greater the likelihood. Within the warrant at the price of chances, so warrants issue price or trading in general, the higher the price.
5. Risk-free rate
The level of risk-free interest rate determines the cost of the investment the size of the underlying assets. The higher the risk-free rate to invest in higher cost of underlying assets and therefore warrants become more attractive, while the attractiveness of put warrants a corresponding smaller, so the subscription (put) warrants the issuance or transaction price will The higher (lower).
6. Expected dividend
If the subject of dividend warrant exercise price is not adjusted, then the value of dividend warrants will be reduced to increase the value of put warrants. But my management methods warrants the provisions of the underlying dividend will adjust the exercise price of, adjusting the formula is: The new exercise price = the original exercise price × (the underlying stock goes ex-dividend price / underlying stock goes ex-dividend closing price the day before). In this case, the underlying value of dividend warrants not only led to decline in the value of put warrants will also be decreased.
Other factors that affect the warrant price
Theoretical value of warrants and the warrants can be built on the underlying basis of unlimited short selling in the target can not be short, warrants short selling (the creation of the equivalent of short selling) has been strictly limited circumstances, the warrant transaction price and the market supply and demand is closely related to In the case of short supply warrants, warrants substantially higher than the theoretical value of the transaction price will be difficult to avoid. Warrant transactions with the theoretical value of the price level is not only relevant, but also with the size of the share warrants in circulation, whether to allow the creation and the creation of the relevant quantity. Should be noted that, due to the subject can not be short, for those values is almost 0 after the expiration of the warrants, the maturity will occur before the actual transaction price lower than the theoretical value of the situation.
The main risk warrants investment
1. Leverage Risk
Warrants is a highly leveraged investment vehicle, its price is only a relatively small proportion of the underlying asset price. Investors to invest in warrants, the opportunity costs of limited access to greater benefits, once the misjudgments, investors may also suffer in the short term full or huge losses.
2. Time Risk
Different from some other securities, warrants the continued existence of a certain period, and its time value will decrease as the time passes quickly. After the expiration (without expiration date), warrants will become a piece of paper.
3. The risk of missing expiry date
In addition to cash settlement based warrants, exchange of the due date will automatically have the value of warrants for the implementation of settlement, all other warrants must be offered to the implementation of demand by investors, so investors must pay attention to the expiration date of warrants by the investors
