
- 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.
(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
(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.
Increase in | Call DW | Put DW |
---|---|---|
Time to maturity | Increase | Increase |
(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.
Increase in | Call DW | Put DW |
---|---|---|
ค่าความผันผวนแฝง | Increase | Increase |
(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.
Increase in | Call DW | Put DW |
---|---|---|
Change in Interest Rate | Increase | Decrease |
(3) Comparison between Call DW and Put DW
Increase in | Call DW | Put DW |
---|---|---|
หลักทรัพย์อ้างอิง Price | Increase | Decrease |
Expected Dividends | - | - |
Interest Rate | Increase | Decrease |
Time To Maturity | Increase | Decrease |
ค่าความผันผวนแฝง | Increase | Decrease |
(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
DW | Options | Futures | Equities | |
---|---|---|---|---|
Holding Period | Short | Long | Short | Long/Short |
Provides Leverage | Yes | Yes | Yes | No |
Shortable | No | Yes | Yes | Depends |
Limited Downside | Yes | If Long | No | No |
Bid-Ask Spread | In general tight | No | No | In general tight |
Expiration | Can be tailored | Fixed | Fixed | No |
Account Type | Equities A/C | TFEX A/C | TFEX A/C | Equities A/C |
Margin Requirement | No | Yes | Yes | No |
Volatility Risk | Yes | Yes | No | No |