Basic DW Knowledge

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- a form of option in which investor can only take a long position
- Typically issued with a life span of 2 months to 2 years but investors usually trade before expiry
- More than 1,300 warrants traded in The Stock Exchange of Thailand with variety of features and underlying.

(1) What is DW ?

(2) The component of DW Price

(3) Comparison between Call DW and Put DW

(4) Key consideration of investing DW

(5) Which type of investor are you

(6) Comparing DW with other products

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(1) What is DW ?

A Call DW – for investors hold positive views on the underlying asset
A Put DW – for investors hold negative views on the underlying asset

DW ticker – i.e. CPAL41C1912A , AOT41P1912A

(2)The Components of DW Price

Price = Intrinsic Value + Time Value

(2.1) Factors affecting warrants Prices – Intrinsic Value

- Level of underlying price versus the exercise price
- Moneyness: In-The-Money (ITM), At-The-Money (ATM), Out-Of-Money (OTM)

(2.2) Factors affecting Warrants Prices – Time Value

Time value reflects the probability of a warrant expiring in-the-money to realize its intrinsic value. The longer the time to maturity, the greater the chance that a warrant will become in- the-money, or profitable.

(2.3) Factors affecting warrants Prices – Implied Volatility

ค่าความผันผวนแฝง – the marketplace’s view for future volatility of a stock. If marketplace views themovement of stock will be more volatile (higher implied volatility), the higher probability that a warrant will become in-the-money, which increases the time value and hence the warrant price.

(2.4) Factors affecting warrants Prices – Dividends

Based on DW Term & Condition, Issuers will adjust DW exercise price and exercise ratio in order to cover the impact on underlying dilution effect. Assume other factors constant, DW price should be the same between before XD and after XD.

(2.5) Factors affecting warrants Prices – Interest Rate

Increase in interest rate implies higher funding cost, therefore, Call DW will be better investment opportunity than directly invest in underlying. However, higher interest rate implies higher reinvestment return, therefore, Put DW will be worst investment than sell the underlying and reinvest with high reinvestment return.

(3) Comparison between Call DW and Put DW

(4) Key considerations of investing DWW

Managing investment time horizon

- Change in implied volatility
- Time value decrease over time
- If holding period is long (i.e. to expiry date), underlying price must be higher (call) or lower (put) than exercise price

Select DW structure base on “Exercise Price and Expiry date”

(5) Which type of investor are you?

Active Day Trader –– ease of trading and concern transaction cost
- Tight bid-ask spread
- No margin requirement
- Can be traded by stock account

Trend Investor –– Market trend and money flow
- DW money flow could be a good market trend indicator

Buy and Holder –– Portfolio diversification, Risk Management
- Wide range of available underlying including single stock and index
- DW provide gearing effect comparing with holding stock
- Can be traded by stock accountLimit investment loss

(6) Comparing DW with other products