The Official Kenanga Warrants Blog

UMWOG-C17 and Out-Of-the-Money warrants information

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Publish date: Tue, 18 Jul 2017, 09:28 AM
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UMWOG-C17 and Out-Of-the-Money warrants information

UMWOG-C17: most popular UMWOG warrant
- Effective Gearing 5.51x (highest in the market)
- Sensitivity at 10 ticks
- Expires on 24/11/2017

What does this mean?
- Effective Gearing means that when UMWOG moves up by 1%, UMWOG-C17 will move up by 5.74%.

- Sensitivity means UMWOG must move up by 10 ticks (10 cents) to cause a 1 tick movement in UMWOG-C17.

But why does it take 10 ticks for a 1 tick movement in UMWOG-C17?
This is because UMWOG-C17 is far Out-of-The-Money (OTM).
Strike price: RM0.80
Current price of UMWOG: RM0.37 (+28.7%)
Current price of UMWOG-C17: RM0.005

So, what's the big deal with buying an OTM warrant?
If your warrant is close to expiration (< 1 month), there is a possibility that when the underlying price goes up, the value of very short-term OTM warrant may remain constant!
This happens when the favourable price movement of the underlying share is unable to compensate for the time value decay.

 

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