Posted by Ooi Teik Bee > 2013-10-02 13:34 | Report Abuse

It is not how good you are in calculating the premium or discount. Like it or not, a warrant which is trading at a discount means not many people are interested to buy this warrant. For practical reason, I prefer to buy the warrant with a bit premium but not discount. I am interested to see the price moves up after I bought. It is no point to buy a warrant which is trading at a big discount, but the price cannot move up. It is a "supply and demand" in stock market.
I do not care it is white cat or black cat, I want the cat able to catch the rat.
Thank you.

Posted by Avocado_C > 2013-10-02 14:06 | Report Abuse

Both Gamuda and IJM are good companies (No?), I agree that they may have limited upside compare with other small cap counters (in near term), hence, warrant is traded at a discount.

I saw these two warrants as I thought there are cheaper alternatives than buying the mother share, when the timing is right (say a market correction). So, I noted down for reference.

Everyone in stock market has a view, that's why there is buy and sell, which made the market interesting. I appreciate KCChong's contribution a lot (that's why I try to contribute a bit), and of course, Mr. OTB offers valuable inputs too, thanks very much.

Posted by xyzsim > 2013-10-02 14:10 | Report Abuse

hi i'm new in warrant ..I had bought JCY-Co? May I know how am i convert to mother share ? Is this worth to convert?

Posted by kcchongnz > 2013-10-02 14:53 | Report Abuse

Avocado, my opinion is it is not a bad idea investing in Gamuda or IJM's company warrants when they are selling at a discount, especially if you are upbeat about the company's business. Why?

1) When you buy the warrant at a discount, your risk of losing is low while still maintaining the opportunity to make good money before the expiry date of the warrant whenever there is a spike of the volatility of the underlying share.
2) Within this couple of years whenever the underlying share goes up above the present price, the warrant will generally goes up in tandem. The return of warrant will generally be higher because of the gearing.
3) Even if the warrant price doesn't go up in tandem because of the supply and demand thing, you can convert to the underlying share and sell for a good profit.
4) One should look at the value of the warrant in relation to the underlying share, rather than speculate if there is demand for the warrant or not, because the speculation, well, is speculation.
5) If you buy the warrant at high premium and hope that the demand and supply thingy will raise up the price further, well you are speculating. Speculating and gambling with insiders and institutional investors who have all the resources to beat you, a small time retail speculator. Are you sure you can beat them in the game?

Posted by inwest88 > 2013-10-02 14:59 | Report Abuse

kc, do you agree if I say that WCT-WC may be a good buy as it's premium is only minimal. Having said that WCT, together with Mudajya are tow of the worst performing construction stocks post GE13.

Posted by kcchongnz > 2013-10-02 15:08 | Report Abuse

inwest88, I would agree with you. It has a good gearing too at 5.3 times. Within this two and a half years before the expiry of Wc, is WCT share price spikes up, the reward will be great. That is because you buy it at low premium.

Again it depends on whether WCT will do well in the next two and a half years.

Posted by inwest88 > 2013-10-02 15:13 | Report Abuse

Thanks kc, I reckon that WCT is quite a solid compnay, making profits every year and plenty of cash and reserves. Somehow it's not moving in tandem with the other big construction companies like Gamuda and IJM etc

Posted by kcchongnz > 2013-10-02 17:58 | Report Abuse

focus-on-the-downside-and-let-the-upside-take-care-of-itself

Just read this article from Mark Sellers, a very successful US fund manager. This is a good guide to use for investing in warrants, in fact for any investment too.

http://www.gurufocus.com/news/106292/mark-sellers-speech-to-investors--focus-on-the-downside-and-let-the-upside-take-care-of-itself

Posted by kcchongnz > 2013-10-03 06:22 | Report Abuse

Posted by xyzsim > Oct 2, 2013 02:10 PM | Report Abuse
hi i'm new in warrant ..I had bought JCY-Co? May I know how am i convert to mother share ? Is this worth to convert?

Nobody responds to this? This is mine.

xyzsim, dabbling in warrants is not for you.

Posted by kcchongnz > 2013-10-08 12:20 | Report Abuse

Buying a company warrant at discount is a losing game? No demand hence price won't move up? Better buy at premium price?

I bought a no-demand company warrant of a non-demand stock Freight at 28 sen less than 5 months ago. There are people queuing up to buy at 54 sen, 53 sen 52 sen etc now.

What happen at this price? Freight Wa even with buyer at 54 sen is still trading at a big discount of 7.4% when the underlying share is at 1.63 now. Some more it comes with a good gearing of 3 times.


Posted by kcchongnz > May 15, 2013 04:37 AM | Report Abuse X

Yeah lah 1.09 boh liao, gone with the wind.

After somebody "um, um, um", I went in again three weeks again, but not in the mother share, but the warrant, Wa, at 28 sen just to shut his big mouth. Now let me evaluate my gain or loss.

I sold 20,000 shares at 1.09 on 8 March 2013 at 1.09, proceeds was RM21700. I bought 77800 shares of Wa at 28 sen with all the proceeds for sale of the mother shares. Now the mother share is 1.34 and Wa at 37 sen. My gain in Wa is RM7000 now, or 32%. My "loss" for not holding the mother share till now is RM5000, or 23%.

So which is a better position, hold mother share or Wa? Shit, should have straightaway bought Wa the day I sold the mother share when Wa was about 20 sen!

At today's prices, Wa is trading at no premium at all despite that it has more than 3 and a half years more to go before it expires. It has a nice gearing of 3.6 times some more. This is what we call "having the cake and eat it".

Posted by sesisir_pisang > 2013-10-08 13:11 | Report Abuse

my personal view on Freight-WA....there is demand for underlying, that is why underlying moves. Underlying moves, WA will follow, hence why not ? important thing still goes back to the underlying. When we say supply & demand, then make sure it is supply & demand for underlying, not on WA.

On those WA where the cost per unit price > than RM 1, they are suffering from a kind of perception from the punters. When the cost per unit price of WA went above penny category ( > RM 1.0 ) ~ it is always perceive as too expensive to leverage regardless the ratios. Ratios not important to punters, coz they don't know about them. Hence they don't give a damn about ratios.

Posted by kcchongnz > 2013-10-08 13:35 | Report Abuse

Yes! Look for demand for a share of the company's great business, demand because of its business profitability and growth; not the liquidity or non-liquidity of its stock. The price of the underlying and hence the warrant, will follow.

Hard to find similar wavelength like that of sesisir pisang.

Posted by kcchongnz > 2013-10-08 18:08 | Report Abuse

Are you bullish on L&G? Why not take a look at its loan stock?

L&G and its loan stock is traded at 37.0 sen and 22.0 sen respectively. Here is an arbitrage opportunity:

Sell 100000 shares of L&G at 37.0 sen, receive RM37000
Buy 100000 shares of L&G-LA simultaneously at 22.0 sen and pay RM22000
Pay 100000*0.13 or RM13000 to convert to 100000 shares of L&G, and return the shares to lender.
Total cost = 22000+13000= RM35000
Profit = 37000-35000 or RM2000

However, short sell is not allowed in Bursa. You have to buy the 1000000 shares of L&G-LA with your own money, and then send for conversion with RM13,000. Hopefully by the time you get back the converted shares, L&G is traded the same at 37.0 sen a piece or higher. Hence this is not a risk-free arbitrage opportunity, but good punt nevertheless.

But who would want to convert if there is still 5 more years to expiry? Moreover there is a 1% interest payment for the LA.

Posted by kcchongnz > 2013-10-21 18:57 | Report Abuse

I started this thread about a month ago. Let us review what is the return of those company warrants shared. Most warrants recommended as good value are generally selling at discounts when they were written. Table 1 below shows the return of the underlying shares and their warrants.

The KLSE index has not moved at all since a month ago, It is still at about 1802. All the 8 warrants and their underlying shares (except for L&G Loan stock) recommended return with positive numbers, the highest being HapSeng with its underlying share and warrant increased by 15.5% and 51.4% respectively. This indicates the gearing and closing of discount effect of the warrant with respect to its underlying share.

The average return of the warrants recommended 16.0%, more than three times the average return of the underlying shares of 5.1%, also indicating the same things; the closing of the discounts and the gearing effect of derivatives. The closing of discount is also apparent for the L&G loan stock of which the underlying share dropped by 1.4% but LA increased by 2.3%.

Punchak Wb which was not recommended as buy because of its premium and low gearing is the only one gone into the negative territory. It lost 2.1% though the underlying share gone up by 3.5%. the other warrant, Redtone, which was not recommended moved a little.

So my conclusion is as expected. Buying company warrants at a discount and good gearing is a better strategy than buying warrants at premiums and low gearing and with active trading.

Table 1: Company Warrants
Then Now Gain/loss Recom?
Hapseng 2.19 2.53 15.5%
Wa 0.555 0.840 51.4% Yes

LBS 1.71 1.77 3.5%
Wa 0.75 0.815 8.7% Yes

Freight 1.50 1.62 8.0%
Wa 0.485 0.575 18.6% Yes

Pantech 0.985 1.03 4.6%
Wa 0.555 0.63 13.5% Yes

Gamuda 4.7 4.89 4.0%
Wd 2.01 2.20 9.5% Yes

IJM 5.78 5.81 0.5%
Wc 1.73 1.75 1.2% Yes

YTLP 1.78 1.89 6.2%
Wb 0.52 0.64 23.1% Yes

L&G 0.37 0.365 -1.4%
La 0.22 0.225 2.3% Yes


Redtone 0.700 0.700 0.0%
Wa 0.430 0.445 3.5% No

Punchak 3.14 3.25 3.5%
Wb 2.36 2.31 -2.1% No

Posted by nightshade > 2013-10-21 22:33 | Report Abuse

I only agree 50% of your conclusion , especially on the gearing part. Traders who go into WA want to leverage, hence the higher gearing , the better leverage exposure

On discount & premium part, of course it will be safer to initiate WA in discount as the downside is limited, the capital is more secure but most of the time, WA in discount do not offer a good gearing level compare to WA in premium .

If the traders are so bullish on underlying that there might be a great movement soon, most often the sequence of priority will be gearing first, discount / premium second .

Focus Malaysia published a good article on FRB - WA & WB last weekend. I"m in my opinion the reasons given to speculate the underlying are valid. This is one example when WA with higher gearing & premium are favorable compare to lower gearing lower premium conditions.

Posted by kcchongnz > 2013-10-22 07:12 | Report Abuse

Good comments from nightshade.

[WA in discount do not offer a good gearing level compare to WA in premium.]

Your statement above is generally true. However, those warrants I have written and recommended have good gearing averaging about 3 times. Besides they are also mostly selling at discounts too.

Whereas those two warrants which are not recommended are selling at premiums and also low gearing of about 1.5.

Is it just a coincidence?

Think about it. If a warrant is selling at a high premium of say 50%, the underlying share has to move 50% before you get an intrinsic value equals to the price you pay. Unless the warrant has a long time to expiry, it is not easy for the underlying share to go up by 50% in a short time say one or two years.

And in an efficient market, the price of the underlying is generally is what the market thinks it is worth, unless you have some insider information about the company that nobody knows. If a magazine like Focus already know about this information and publishes it, how many other insiders and other people have already known about it?

Posted by nightshade > 2013-10-22 09:56 | Report Abuse

coincidence ? you cannot totally eliminate this possibility away without any doubt, hence nightshade say yes, there are chances for coincidence , lol

On your next statement -

Think about it. If a warrant is selling at a high premium of say 50%, the underlying share has to move 50% before you get an intrinsic value equals to the price you pay. Unless the warrant has a long time to expiry, it is not easy for the underlying share to go up by 50% in a short time say one or two years.

nightshade view -

i)you holds your WA to expiry most of time? i guess most of us don't. if you need more than 1 year & 2 years for underlying to move, then we should not be on this leverage instrument in the first place :)

ii) most of the time, the time value(premium level)do not depreciates rapidly over time ( 50% to 0 ), it will be more gradual in process....hence when the premium level were there to stay and the WA will move accordingly when underlying moves

Your following statement -

And in an efficient market, the price of the underlying is generally is what the market thinks it is worth, unless you have some insider information about the company that nobody knows. If a magazine like Focus already know about this information and publishes it, how many other insiders and other people have already known about it?

nightshade view - the magazine only highlighted the information which are available to public...from the information, they are making a deduction on the underlying.....any problem if everyone getting the same piece of information ? :)

though underlying is not a investment grade at the time being but the reasons highlighted may grant a valid "speculation" to the underlying

- Ho Hup Bhd stake
- insiders accumulation on FRB-WA itself

Posted by kcchongnz > 2013-10-22 10:09 | Report Abuse

nightshade, thanks for your valuable feed back. No issues with your comments. I respect your difference in opinion. After all that is how the capital market works, a place where there are opposite opinions resulting in buy sell activities.

Posted by nightshade > 2013-10-22 11:32 | Report Abuse

hey, i read this quote somewhere,couldn't remember who quoted it. the quote sounds like this

if A & B always in agreement no matter what, one of them is useless

if A & B always in disagreement no matter what, both of them are useless

if A & B in agreement & disagreement sometime, things are in order

Posted by lotsofmoney > 2013-10-22 11:39 | Report Abuse

Like ' the blind lead the blind.'

Posted by nightshade > 2013-10-22 12:49 | Report Abuse

@lotsofmoney sound like in disagreement with something, hahaha

mind to point out for sharing purposes? thank in advance

Posted by lotsofmoney > 2013-10-22 13:09 | Report Abuse

None of us know the future. In a way, any predictions are blind.
Warrent, Str. Warrent, covered warrent, options etc. are just attempts to squeze out as much as possible from a single entity. When the entity died, all the superstructures will just collapsed and disappeared.

Posted by Avocado_C > 2013-10-22 16:53 | Report Abuse

KCChong, good day! Should we track PJD-WC as well since you mentioned it's attractive?

What do you think about SPRITZER-WA:
Price: RM0.58
Mother share: RM1.73
Exercise price: RM1.18
Exercise ratio: 1:1
Maturity: 13-12-2016
Gearing: 2.98x
Premium: 1.73%

Do you mind creating a watchlist to track the warrants mentioned in this thread?

Posted by kcchongnz > 2013-10-22 16:58 | Report Abuse

PJD Wc? Yes, yes, yes.

Spritzer Wa? Don't know yet.

Posted by faberlicious > 2013-10-22 18:29 | Report Abuse

KC,please take look at MBMR WA

MBMR-WA
Warrant price- 70 cents


Mother share- 3.72
Exercise Price- 3.20
Maturity date- 14/6/2017
Premium- 4.84%
Gearing- 5.31

I like this warrant.In and out a many times.Did u tikam YTLP WB?

Posted by Leong Hong Haye > 2013-10-22 18:43 | Report Abuse

What about WCT WC?

Posted by kcchongnz > 2013-10-23 09:33 | Report Abuse

WCT company warrants (23/10/13)

There are two outstanding company warrants issued by WCT. The exercise price, expiry date and the current price of each warrant is listed in Table 1 below, along with their intrinsic value and the respective premium, implied volatility and gearing to the warrants:

Table 1
Warrant Price Ex-Price Exp date Intrinsic value Premium Imvol Gearing
Wc 0.470 2.04 10/03/2016 0.380 3.7% 18% 5.1
Wd 0.420 2.25 11/12/2017 0.170 10.3% 19% 5.8
WCT at RM2.42 on 23rd October 2013
Imvol is implied volatility

If one is bullish about the company WCT in particular and the market in general, warrants may offer a better alternative way of investing/trading than the underlying share. But just which warrant should one choose as a better play? It actually depends on individuals.

The best warrant to choose from is one with the lowest premium, the longest expiry date and the highest leverage. However all these favourable criteria don’t come together as you can see from Table 1 above. Both warrants above are in-the-money with positive intrinsic values. Wc is of better value trading at a lower premium of 3.7% and with a good gearing 5.1. Wd has a longer expiry date of more than 4 years and higher gearing of 5.8. However the premium is higher at 10.3%. So just which warrant is the best to buy?

For me I feel there is not much difference which to choose as both have approximately the same implied volatility. Most people may choose the longer expiry date and higher gearing Wd, especially if they are bullish about WCT. It is just individual choice.

Posted by kcchongnz > 2013-10-23 09:53 | Report Abuse

Posted by Avocado_C > Oct 22, 2013 04:53 PM | Report Abuse

What do you think about SPRITZER-WA:
Price: RM0.58
Mother share: RM1.73
Exercise price: RM1.18
Exercise ratio: 1:1
Maturity: 13-12-2016
Gearing: 2.98x
Premium: 1.73%

At today's price of 1.71, and warrant price 59 sen, the implied volatility is about 25%. Hence I would be indifferent about this warrant.

So if you are bullish about Spritzer, may be good idea to go ahead and invest in the warrant.

Posted by kcchongnz > 2013-10-23 10:40 | Report Abuse

Posted by faberlicious > Oct 22, 2013 06:29 PM | Report Abuse

KC,please take look at MBMR WA

MBMR-WA
Warrant price- 70 cents


Mother share- 3.72
Exercise Price- 3.20
Maturity date- 14/6/2017
Premium- 4.84%
Gearing- 5.31

I like this warrant.In and out a many times.Did u tikam YTLP WB?

faberlicious, with a low premium of 4.84%, and about 4 more years to expire, MBMR Wa appears to be a good value warrant. However, the problem is MBMR pays out a lot of dividends, something like 41.35 sen last year. So the dividend yield for MBMR is very high at 11%. A I right?

Warrant holders do not enjoy the dividends. High dividend diminishes the value of the underlying share and hence the value for the warrant holders. Using a dividend yield of 11% and an assumed historical volatility of MBMR, the warrant at 71 sen can be twice overpriced.

If you are bullish about MBMR, I think it is better to buy the underlying share rather than the warrant.

This is just my personal opinion and you don't have to follow.

Posted by faberlicious > 2013-10-23 11:22 | Report Abuse

KC,thanks for your comments. I think u got it wrong on last year's dividends. They pay only 9 sen dividend( 1st and 2nd interim 3 sen plus 3 sen special dividend). Where got pay 41.35 sen so much.No lah. How did get that figure?

Posted by kcchongnz > 2013-10-23 17:30 | Report Abuse

faberlicious, yeah you are right. The 41.35 sen is the EPS, not dividend. Saw wrongly. Die lah, sure kena hantam by somebody already. How?

Yeah with dividend of just 9 sen, or a dividend yield of just 2.4%, it is not that damaging to the warrant holders. At the closing price of the underlying share at 3.72 today, using option pricing, the implied volatility is less than 15%. Meaning the warrant price of 71.5 sen today is reasonably low. Besides the gearing 5.2 is great.

See the difference in dividend yield on the warrant price? Next time, let me know the dividend per share of any warrant you intend to ask.

Posted by faberlicious > 2013-10-23 20:56 | Report Abuse

Posted by kcchongnz > Oct 23, 2013 05:30 PM | Report Abuse

faberlicious, yeah you are right. The 41.35 sen is the EPS, not dividend. Saw wrongly. Die lah, sure kena hantam by somebody already.

Sure kena hantam ah? Ha ha ,that's a good one KC.

Posted by kcchongnz > 2013-10-24 15:57 | Report Abuse

faberlicious, thanks for this MBMR Wa tip just yesterday. Earn some money for tonight's dinner for the family.

Now I find company warrant better to play than call warrant.

很好玩的遊戲

Posted by faberlicious > 2013-10-25 14:18 | Report Abuse

Ah,glad you make some money from MBMR WA KC.If I find some more "chun" warrant,will share with you ok. :)

Posted by Avocado_C > 2013-11-01 11:15 | Report Abuse

*Sigh* I just wanted to rant ... I missed out on my own warrant selection - SPRITZER-WA. Today fly to 70cents, I didn't monitor price movement lately because busy at work :-(

Posted by 林俊松 > 2013-11-03 21:13 | Report Abuse

KCchong, how u feel about Mah Sing WB warrant? Can enter now?

Posted by kcchongnz > 2013-11-06 11:14 | Report Abuse

Mahsing Wb (061113)

Mahsing Warrant B is trading at 55 sen while the underlying share is at RM2.20 now on 6th November 2013. It has an exercise price of RM 1.98 and the expiry date is on 18th March 2018, or in about 4.5 years time. The warrant is hence in-the-money with an intrinsic value of 22cents (2.20-1.98). However if you buy Wb at the price now of 55 sen now, you pay a premium of 33.0 sen, or a premium of 15%. This premium appears to be a little high but there is a gearing of 4 times for Wb. Moreover, the expiry date is quite a long time to come. Hence if you are bullish about Mahsing, Wb may offer a good alternative with a lower cost.

The theoretical value of warrant depends on the price of the underlying share, the exercise price, time to expiry, its volatility, the risk-free rate; in that order of importance. The Black-Scholes option pricing model, using a historical volatility of 31.5%, risk free rate of 3.5%, dividend yield of 2.3% and Mahsing’s price now at 2.20 shows that the warrant has a theoretical value of 64 sen, or 15% above its present price of 55 sen.

My personal opinion is Wb offers a better investing opportunity because of its reasonable premium with a good gearing . It also has quite a long time before expiry. Furthermore there is good upside potential for the underlying share as Mahsing has been aggressive in its development projects.

Posted by nightshade > 2013-11-09 13:24 | Report Abuse

Kulim: Currently closed at RM3.66

Kulim-WC
Maturity Date 27/02/2016
Revised Strike Price MYR 3.1300
Exercise/ Conversion Ratio 1 Warrant: 1 ordinary share

Kulim- CN (C)
Maturity Date: 28/02/2014
Exercise Price: MYR 3.70
Exercise Ratio: 3 : 1

I'm feeling comfortable with the accumulation activities by major shareholders like Johor Corp, EPF & KWP. Normally when the big guys like them around accumulating the underlying, the chances to make money in the warrant also increases

Posted by kcchongnz > 2013-11-11 06:32 | Report Abuse

Yeah, if one is bullish about Kulim, the company as well as the call warrants offer good punt. I said "punt" because fundamentally, I don't think Kulim is a good company. The return of the warrants has to depend on on the insiders to fry up the share price.

I prefer CN with a reasonable premium of just 5.2%, but a good gearing of 24 times, and expiring in more than 4 months time.

A high gearing is very good when the underlying share moves up high, but the reverse is also true if the share price goes the other way round.

So how sure are you about the movement of the underlying share price?

Posted by nightshade > 2013-11-19 08:10 | Report Abuse

nothing is sure but we are on higher winning position as the sentiment turn bullish for overall palm oil sector

Posted by kcchongnz > 2013-11-19 13:04 | Report Abuse

Sime call warrant CW (19/11/13)

Sime Call Warrant CW is trading at 10.5 sen while the underlying share is at RM9.80 now at the morning close on 19 November 2013. It has an exercise price of RM 9.40 and the expiry date is on 30 May 2014, or more than 6 months time. The conversion ratio is 4:1.

The call warrant is hence in-the-money with an intrinsic value of 10cents. If you buy CW at the price now of 10.5 sen now, you pay a small premium of half a sen, or 0.2%.

It is indeed a surprise that with a such a high gearing of 23 times of CW, or an effective leverage of 15 times, the premium asked is so small. Moreover, the expiry date is still a long way to go. Hence if you are bullish about Sime, CW offers an extremely good and exciting punt.

The table below shows the percentage gain/loss of CW with the settlement price of the underlying share at the expiry date.


Uly Price 9.40 9.60 9.80 10.00 10.50 11.00 11.50 12.00
Uly gain/loss -4.08% -2.04% 0.00% 2.04% 7.14% 12.24% 17.35% 22.45%
CW gain/loss -100.0% -52.4% -4.8% 42.9% 161.9% 281.0% 400.0% 519.0%

Posted by nightshade > 2013-11-19 13:05 | Report Abuse

MISC-CT at current situation

Posted by kcchongnz > 2013-11-24 06:04 | Report Abuse

The power of leverage in investing: Warrants

Although many people like to use leverage to amplify return from the stock market, there are equal or may be even more of them scorn it. Yes, investing with leverage cuts both ends. So as a self proclaimed prudent investor, why do I advocate the use of leverage in investing in warrants?

The theoretical value of warrant depends on the price of the underlying share, the exercise price, time to expiry, its volatility, dividend payment of the underlying and the risk-free rate.
Let us take a warrant PJ Development Warrant C (WC) as an example how a leveraged instrument can be used as a financial risk management in investing rather than punting.

Wc has an exercise price of 1.00 and expire in 7 years time on 4th December 2020. At the latest closing price of PJD and Wc at 1.28 and 35.5 sen respectively, the leverage or gearing is 3.6 times. Wc is in-the-money now but it is trading at a premium of 6%. This means that if you buy Wc at 35.5 sen and pay RM1.00 to send it to convert to PJD share, you are overpaying to own PJD shares by 6%. But who would be so stupid to do that ? There is precious time value in Wc which you won’t want to lose it by converting Wc to PJD share now.

Let say I am bullish about PJD that the company will do well in the next 7 years and I believe that its share price will go up to RM2.00 within this 7 years before the expiry of Wc. Let say I first intend to invest in 10,000 shares of PJD for RM12800. If PJD share price goes up to RM2, I will sell it for a profit of RM7200, or 56%. Now instead of placing RM12800 at risk, what if I spend just RM4000 to purchase 11200 shares of Wc, or just a third of capital layout?

I would achieve my goals if PJD really goes up to RM 2.00 within this 7 years as I would convert Wc and then sell in the market of the converted share of PJD for RM2.00. I would make the same amount of money, i.e. RM7200, with much lower capital layout and my return is now 182%.

Of course the reverse is also true. If PJD share price goes down by 6% to RM1.20 and as the warrant is still in-the-money, I have to convert Wc as it is expiring, I would lose 44%. What if there is a major economic disaster and PJD goes bankrupt? One will lose all his money whether you are in PJD or Wc. But PJD shareholders lose RM12800, whereas Wc investors lose only RM4000.

Yes, the beauty about warrant investors is warrant holders has the right but not the obligation to convert to the underlying share when it is out-of-the-money, i.e. when PJD share price is below RM1.00, the conversion price. Hence the downside risk of warrant is lower and limited to the lower cost of you investment in warrants.

The table below shows the payoff of Wc with various prices of the underlying share price.

PJD 1.00 1.20 1.40 1.60 1.80 2.00
Wc 0.00 0.20 0.40 0.60 0.80 1.00
Gain PJD -22% -6% 9% 25% 41% 56%
Gain Wc -100% -44% 13% 69% 125% 182%

KC Chong (Auckland 24 November 2013)

Posted by kcchongnz > 2013-12-20 13:31 | Report Abuse

Hibiscus warrant, anyone?

This morning, Hibiscus share price closed 2 sen up to RM2.13 with a volume of 2.9m while its warrant diverged and closed down 6 sen to RM1.55 with a volume of 11m shares. Why?

Hibiscus Wa has 8 months to expire. It has an exercise price of 50 sen. At the prices stated above, the intrinsic value of Wa is RM1.63. That is right. At RM1.55, Wa is trading at a discount of 4%, plus 8 months of free time value. Can't you see the big fat frog jumping all around?

But wait! Before you jump in and buy loads of Wa, think about these:

1)Who are those selling the warrants? Who got the most number of these free warrants in the first place?
2) Why did they sell the warrant with such a discount?
3) Why didn't they convert to Hibiscus share and then sell at a higher price?
4) Are they stupid? I don't think so.
5) Why the buy volume of the underlying share (which went up)is so much lower than the sell volume of warrant (which went down)?

There are simply too many whys. Don't you think so?

Let's have a cup of black Cappuccino or flat white to get a clear mind.

Posted by houseofordos > 2013-12-20 16:27 | Report Abuse

KC, what you are describing sounds a lot like the Instacom case where the director also dump the warrants....

Posted by kcchongnz > 2013-12-20 17:48 | Report Abuse

This is painting the tape. In the old days, punters looked at the tape for the price movement. So insiders traded and manipulated the stock prices as shown by the tape. Small retail punters simply have no chance, absolutely no chance to gamble with them.

Hibiscus share price dropped in such a fury by 32% from RM2.70 to the close of RM1.84 from just three days ago. Its warrant fell by 36% from RM2.08 to RM1.32 for the same period. Very seldom see such fast and fury action.

Hibiscus is no exception. Three months ago Sersol warrant dropped from 91 sen 35 sen, exactly the same way as Hibiscus.It is trading at 31 sen now.

Other similar cases are TMS, Ingens and Asupreme warrants etc. For punters who wish to make money gambling with insiders and manipulators, it is a jungle out there.

Posted by kcchongnz > 2013-12-27 15:56 | Report Abuse

Arbitrage opportunity for Hibiscus warrants

Hibiscus share is trading at 1.74 while its warrant is trading at 1.16 right now. There is a discount on the warrants, a free lunch?

If I have 100000 shares of Hibiscus, I will do the following and pocket quite a fair bit of money without any change in my position.

Action No of shares price Amount
Sell Mother share 100000 1.740 174000
Buy Wa 100000 1.16 116000
Add conversion cost 100000 0.50 50000
Total cost xxxxxx xxxx 166000
Pocket xxxxxx xxxx 8000

I am sure there are plenty of smart investors out there. Why aren't they doing this? Are they stupid? I doubt so.

Posted by kcchongnz > 2013-12-27 15:59 | Report Abuse

The very logical actions of arbitrageurs would make any discount of warrants disappear. Why is this not happening?

Posted by tonylim > 2014-02-20 17:12 | Report Abuse

..

Posted by katappa > 2019-07-09 21:57 | Report Abuse

7 years ago...tonylim, masih hidup kah ?