Category: Money tips Release Date: 2006-08-26
In warrants and stock options do not exist between the essential nature of difference.
For example, a dilution effect of equity warrants, the company release, the management incentive stock options can also have dilution effect. Stock warrants in essence is a kind of stock options. However, from the world's existing stock options, warrants and exchange-traded taken concrete form in the view, roughly between them, there are differences in the following five areas:
(1) is valid.
The validity of warrants (ie, the Issue Date to the length of the period between the maturity date) is usually longer than the validity of stock options: the validity of warrants is generally more than one year, while the validity of stock options is generally less than one year. Partial short period of stock options, not because they can not design development period, but traders of natural selection. Just like futures contracts, futures contracts trading volume are normally gathered in recent months, contract, trading volume far month contracts rarely would rather not hang.
(2) Standardization.
Warrants are usually non-standardized, in circulation, the Executive price, issue date and expiration date, etc., the issuer can usually set up on their own, while the vast majority of exchange-traded stock options are highly standardized contracts. Of course, the current with IT technology, the counter market and the exchange floor market integration trends, the counter on the market of non-standardized stock options have begun to enter the market exchange floor.
(3) short.
Warrants transactions are typically not allowed to sell short, even allowing short selling, short selling must be established prior to borrow on the basis of physical warrants. If there is no new issue and expiration, then the number of warrants in circulation is fixed. The stock options in the transaction, investors are free to sell short, and you can freely choose to open open positions, stock options, net open position limit of investors unwinding with the constantly changing behavior.
(4) third-party settlement.
In warrants the settlement is between the issuers and holders, while the settlement of stock options is determined by independent buyers and sellers of professional settlement institution for clearing. Therefore, the credit risk of trading stock options, warrants should be lower than the credit risk of trading.
(5) market makers.
Warrants market-making obligations of the issuer usually automatically assume, even if the exchange had not been formally designated, the issuer would normally need to take the initiative to issue warrants for their transactions liquidity. The stock options market maker must be duly authorized by the exchange.
Have seen above, the global volume of stock options is far greater than the amount of derivative warrants trading. Now available through this comparison, easy to understand why this is so. Clearly, in the tradability of credit risk in such areas as stock options are better than warrants. It can be generally speaking, exchange-traded stock options, like the industrialization of large-scale production is now under a high degree of standardization, standardization of products, while the Warrants are like hand-tailored workshop phase of the product. Although individual people, the customized product is better than standardized products, but from the application of the surface becomes narrower. But on the other hand, highly standardized products that can not completely replace the customized products.
Currently in the world, the same kind of stocks will have stock options, warrants, is a common phenomenon. For example, in Hong Kong, China Mobile (Hong Kong) Limited's shares are supported by corresponding stock options in the transaction, but also there are as many as the number of as many as 61 kinds of derivative warrants in the transaction. It is precisely because in between the warrants and stock options, there is no essential difference between sex, so Galai and Schneller (1978) proved that given the same conditions, the same underlying stock price and stock warrants, options, price should be equal to . However, Veld and Verboven (1995) study in the Netherlands Amsterdam Stock Exchange (ASE) transactions in more than one year validity period of a stock purchase rights (the call option) and conditions similar to the stock price relationships between derivative warrants. For comparability considerations, their price level is used to measure the implied volatility index. A result, they found that the entire validity period, the price of derivative warrants were significantly higher than the corresponding stock option prices. To explain this phenomenon, they conducted a survey of the market and found that in Amsterdam Stock Exchange, the trading of derivative warrants were mostly in the retail market entry barriers lower than the stock options, and transaction costs than the low transaction costs of stock options . In short, Veld and Verboven (1995) study shows that led to warrants and stock options, the reasons for the difference between the market price of the micro-structural factors, rather than because they exist between the essential nature of the difference.
