Category: Money Tips Date: 2006-10-04
In the second batch of split share structure reform pilot companies, plans to use warrants a lot of ways, Baosteel new pilot programs for every 10 tradable shareholders received 2.2 shares of stock plus a copy warrants. Major Holders relatively easy to understand, "Warrants" to the shareholders of the outstanding shares of what? First, we need to have a warrant basic concept.
Warrants is the issuer and the holder of a contract between, the issuer can be a listed company, may also be a large number of shares of listed companies held by a third party, as its non-tradable shareholders. Warrants allow the holder at the appointed time (rows of the right time), you can use the agreed price (exercise price) to buy or sell warrants corresponding assets, these assets can be stocks, it can be a basket of stocks, indices, commodities , or other derivative products. From China's stock market situation, the upcoming warrants the corresponding assets will be primarily shares of listed companies.
Warrants function of leverage and hedging instruments, is its charm, which can make investors a small broad. However, the relative benefits and risks are always known, warrants, these features are also the sources of risk.
Leverage
As the absolute price is low, the absolute price changes warrant will be less than the corresponding stock (being shares) price changes; but relative to its own low prices, the percentage of its rise and fall times can be a positive shares to ten times, its good leverage may be vulnerable in the storm.
To subscribe for warrants, for example, if the investor shares the market outlook positive trend of sound judgment, then the return on investment warrants are often much higher than the return on investment is stocks. Quotes of the afternoon when the Underlying and investors contrary to expectations, investors may choose not to exercise the warrants. At this point, he is the greatest losses, but when buying warrants will not be too high to pay royalties, direct investment than stocks and the costs to smaller more.
Moreover, in addition to making profits from the exercise of warrants, the investors can also choose to transfer warrants in the secondary market to arbitrage. At this point, in terms of the subscription card in case the market price is higher, then the warrants will be a corresponding secondary market prices skyrocketing, so investors can transfer in the secondary market will warrant in order to earn spreads; on the contrary, in the case stock price is down, investors in the secondary market will still warrant the transfer, this time they bear only the issue of warrant price and the secondary market price spread between the loss of its biggest loss will only have to pay their royalties.
Risk-hedging instruments
As the warrants can do more in the pile, but also in the bearish short time, therefore, has been or is about to hold the spot and futures position of the investors, warrants can be an effective hedging instruments. For example, when stock investors are bearish trend, want to short the stock market, but worried that a wrong ruling Quotes. For insurance purposes, he may shorting stocks in the stock market at the same time, with little capital cost of the warrants to buy a bull. At this point, such as falling stock prices, profits from the stock market, and to abandon the exercise of warrants (although the amount thus lost the right to payment, but after all, the amount is less); such as the stock market higher, he can be transferred to profit or the exercise of warrants to make up for stock market losses. And vice versa: When the call is being judged-cap stocks are also worried that mistakes, you can buy a bearish put warrants.
The risk of price volatility
Warrants, one of the greatest features is its time-sensitive nature, and have a maturity in the future, investors will lose the performance rights. Therefore, the value of warrants as the maturity date will be closer to the decrease. It is precisely because warrants have a time-sensitive and, therefore, brings the value of the instability. Relative to other securities, the warrants value in a highly unstable state. Because of high financial leverage warrants nature, warrant price volatility is much more intense than the underlying shares. Once the investor to determine the error, then the investment loss rate than investment in shares are to be several times higher. In addition, if the underlying assets, the financial situation of the issuer poor Quotes volatility in the underlying assets may occur when the warrants are unable to exercise so that the circumstances warrant holders lose everything.
1995 and 1996, the Shanghai stock market launched Yueda, Fuzhou, East 100 and other stock warrants, the Shenzhen market were offered for Wu Phoenix, Hunan Zhongyi, Ha Hai-fa, Guiliu Gong, Fujian Fujian and other stock warrants. After the expiration of these warrants, because the market downturn, and turn allotment can not be implemented by the management approval, warrants extension of trading for six months. The extension to Market Makers provided a subject to manipulate the market, triggering market speculation warrants crazy. Is only 4.3 yuan and stock prices were more than 3 yuan Xiamen Haifa, Kyrgyzstan, light industry, warrants the price is even greater than the share price even higher, respectively, up to 6.78 yuan and 5.24 yuan. Is the price of 7 yuan Yueda shares, warrants the price as high as 15 yuan. After half a year due to market downturn, issuing warrants had been below the allotment price of some stocks, warrants then worthless. To Xiang Italy, for example, near the warrants delisting, the stock allotment price of 3.2 million shares had fallen to 2.8 yuan, warrants will become a piece of paper. As the warrant price inflation fall, speculation is so extreme that regulators at the end of June 1996 warrants the termination of the transaction.
As can be seen from the above, the C of E has its positive side, as well as its negative side, only the right to have a comprehensive understanding of warrants before they can properly treat it.
