Warrants the basics What is a Certificate of Entitlement Money Tips

Category: Money tips Release Date: 2005-12-27

SSE recently launched a pilot management practices warrant, warrants the implementation of the program is expected to gradually heating up. The market for "warrants" concept is actually very strange, we are starting today introduced a family of universal knowledge of the article warrants the hope that investors concerned about.

First, we take a look at what warrants, we will not do to explain terminology, interested investors can go looking through the book.

A simpler way: a listed company in order to obtain distribution rights to all shareholders, the circulation of the right to issue negotiable certificates. Example, the outstanding shares of Baoshan Iron and Steel shares 15% of the total share capital, if the listed companies tradable want to achieve, it will receive 5.5 shares per share Warrants were distributed to the shareholders in proportion to the circulation warrants. In order to embody the principle of a price distribution, warrants could be a face value. Or as Baoshan Iron and Steel, for example, if the warrant price is 0.5 yuan a, then the distribution of compensation to shareholders is 2.75 yuan per share. Should remind investors that: the original investors in the event of future stock option grants to obtain warrants, will significantly reduce costs, easily lead to the concentration of short-term sell-off, avoid the stock registered a few trading days in the future there is no risk to buy the outstanding shares of compensation warrants .

Applications listed on the exchange of the warrants, which the underlying securities as stocks, the underlying stock should meet the following conditions:
* Last 20 trading days the market value of outstanding shares of not less than one billion yuan.

* Last 60 trading days trading at 25% of total turnover.
* The outstanding shares of capital stock of not less than 200 million shares and so on.
* Convention warrants category, duration, exercise price, the right of the date line, line clearing the right of way line of the right proportion of elements; applied for listing of the warrants of not less than 50 million copies; from the date listed on the survival time of more than 3 months such as the following 18 months.
* Warrants to buy that day, the day can be sold.
* Warrants commissions, fees, etc., taking into account exchange-traded fund standards implementation.

â–?basic knowledge of the relevant Warrants

â–?Q: What is a Warrant?

A: The warrant is a kind of portfolio, investors pay a premium after purchase, has the right (but not the obligation) in a particular period (or a specific point in time) according to the agreed price to the issuer to purchase or sell the underlying securities. Of which: issuer is a listed company or securities companies and other institutions; premium refers to the purchase price paid on warrants; the underlying securities can be stocks, funds, bonds, a basket of stocks or other securities, is the issuer undertaking to agreed terms to warrant holder to buy or sell securities.

â–?Q: How to read the release announcement warrants books?

A: The warrant of the elements will be reflected in the release announcement book, for example: A Company issued to the company's stock for the underlying securities, warrants, assuming that the date of issue of stock market prices of 15 yuan, the book listed in the release announcement release are as follows :

Release Date: August 8, 2005; duration: 6 months; warrants Category: European call warrants; circulation: 50 million copies; issue price: 0.66 yuan; exercisable at a price: 18.00 million; lines of the right duration: Maturity ; lines of the right settlement: securities payment settlement; lines of the right ratio: 1:1.

The terms of telling investors warrants issued by the A's is a kind of equity warrants, the warrants for each premium was 0.66 yuan, the total issue amount of 50 million copies in six months, the sale of warrants, but the line of the right must be made in six months after the expiration day.

A company if the stock price at maturity is 20 yuan, higher than the warrant is exercisable at a price of 18 yuan, 18 yuan investors / stock prices to the market price of 20 yuan issuer to subscribe for A-shares, a net profit of 2 yuan per share, ; if A company's share price at maturity is 15 yuan, 18 yuan lower than the exercise price, the investors can not do right, which just lost the right to payment 0.66 Yuan / unit.

â–?warrants investment in the stock market process

â–?Q: How can investors handle the sale of warrants business?

A: First, investors have to obtain warrants to the securities business department business qualifications to apply for warrant service counters.

Individual customers, I need to bring original and copy of valid ID card, shareholder account card; agents need to carry both original and copy of valid ID card, as well as a notarized power of attorney. Second, the business department business staff review customer information is correct, the first sale and purchase warrants to investors in a comprehensive description of the relevant business rules to fully reveal the possible risks, and the risk of revealing to sign the book.

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Third, the business department business staff opened warrants for customers trading privileges. Warrants after the opening of trading privileges, you can with the sale of common stock warrants to the same transaction, can be commissioned through a variety of ways.

â–?Q: What is the use of warrants trading account?

A: Investors should use the A share subscription warrants securities accounts, transactions and row of the right to declare. Investor A shares if you have opened a securities account do not need to re-open an account, you can use an existing A-share trading accounts warrants.

â–?Q: How do investors warrants charging?

A: The exchange provides warrants commissions, fees refer to the Fund's fees and charges, the current standard of the Fund's commission fee of no more than 0.3% of transaction amount, starting from 5 yuan; line cost for the right to transfer the securities the face value of 0.1%, standard fees, in order to Exchange

And the China Securities Depository and Clearing Corporation issued an official document shall prevail.

â–?How to control the risk to obtain the benefits

â–?Q: How do investors use to obtain warrants earnings?

A: First of all, we can use warrants to obtain excess returns. Warrants is a small broad investment tools, the time of purchase only spend a small amount of the premium, but it may be very large gains.

For example: investors, Lee shares of A stock investment in 1000, Mr. Wang invested 10,000 copies of A Company's warrants, exercisable at a price 18 per hour. They also assume that the stock market, the stock market when the A's stock price is 15 yuan, warrant expires, A company's share price rose to 20 yuan, while Mr. Li and Mr. Wang's profits are shown in table 1.

Contrast can be seen from the table, warrants are highly leveraged nature of investment. Wang judicious cases, the proceeds to buy A go far beyond the company warrants to purchase shares of Mr. Lee. Of course, if Mr. Wang made wrong judgments of their investment losses, there is again much larger than Lee.

Secondly, we can use warrants to hedge. If investors have to hold A shares, you can purchase warrants to hedge, if the investor is estimated that A shares will rise, but may appear inconsistent with the expected situation, you can spend a small amount of money from buying A's recognition of Put Warrants, once when the stock coming down, the warrants was part of the proceeds can be used to compensate for the loss of A shares. If projections are right, the stock prices, buying the stock has been profitable, the loss of only a small amount of royalties.

â–?Q: When investing in warrants should pay attention to what risk?

Answer: (1) price volatility risk: the C of E is a highly leveraged investment vehicle, the market value of the underlying securities may cause small changes in warrant price volatility.

(2) Price misjudge risk: Warrant prices were the price of the underlying security, exercise price, maturity, interest rates, equity distribution and the warrants market supply and demand, and many other factors, warrant holders and other factors to determine which errors are also may lead to investment losses.

(3) The timeliness of risk: warrants and stock different, have a certain duration, and its time value as the expiration date approaches will rapidly decrease.

(4) Compliance risk: financial risk occurs if the issuer, investors may face the risk of the issuer's default.

â–?Q: Warrant Price Limits and Stock Price What's the difference?

A: Warrants Up decline in the absolute decline in the price is up to limit, the calculation formula is as follows:

Warrants Up (or) increase the price = closing price the day before the C of E ± (the date of the underlying securities or the price - the underlying stock's closing price the day before) × 125% × line of the right proportion of

For example: A company's closing share price on certain warrants is 4 yuan, A company's closing stock price of 16 yuan. A company's stock up the next day up or down 10%, or 1.6 yuan; while the warrants the next day can be up or down the magnitude of (17.6-16) × 125% = 2 yuan, converted into decline in the proportion rose as high as 50%. (Zong Bian)

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