Posted by kcchongnz > 2013-09-18 09:30 | Report Abuse

Hap Seng Warrant, Wa (180913)

HAPSENG Warrant A closes at three 5s while the underlying share closed at RM2.19 on 17 September 2013. It has an exercise price of RM 1.65 and the expiry date is on 8th September 2016, or in three years time. The warrant is hence in-the-money with an intrinsic value of 54cents (2.19-1.65). However if you buy Wa at the price now of 55.5 sen, you pay a premium of 1.5 sen, or just 0.7% [(0.555+1.65)/2.19-1]. This premium is definitely very low and moreover, there is a gearing of 4 times for Wa. Hence Wa appears to be a good alternative in investing in the business of Hap Seng.

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 25%, risk free rate of 3.5%, and Hap Seng’s price now at 2.19 shows that the warrant has a theoretical value of 78 sen, or 41% above its present price of 55.5 sen.

The following Table 1 shows the expected price of Wa with respect to the share price of the underlying asset. If HAPSENG goes up to RM 3.00 (a gain of 37%), the theoretical price of the warrant is RM 1.35 for a gain of 143%, 4 times that of if you invest in the underlying share. If the share price of Hap Seng stay put at 2.20 at the expiry of Wa, one loses less than 1%. If the share price of Hap Seng slips below 1.65, the exercise price, buyers lose everything.

The question you have to ask yourself is, What do you think is the direction of the share price of Hap Seng before the expiry of Wa in 3 years time?’

Table 1:
Hap Seng 1.65 2.00 2.20 2.40 2.70 3.00 3.50 4.00
WA 0.00 0.35 0.55 0.75 1.05 1.35 1.85 2.35
Gain/loss -100.0% -36.9% -0.9% 35.1% 89.2% 143.2% 233.3% 323.4%


My personal opinion is Wa offers a better investing opportunity because of its low premium and a good gearing . It also has quite a long time before expiry. Most of all, the company has been continuously buying back its shares recently. This is very good for Wa.

Posted by inwest88 > 2013-09-18 09:34 | Report Abuse

Good analysis, kc. In fact I was eyeing it for some time after otb selected it as one of his stock picks but just couldn't have the courage to go in in view of the uncertainties surrounding currently.

Posted by smartly > 2013-09-18 09:51 | Report Abuse

very informative but below statement not so correct.

"Company or stock call warrants are issued by the company to raise money."

i think the right phrase should be :-

"Company warrants are issued by the company to raise money."

Posted by kcchongnz > 2013-09-18 10:01 | Report Abuse

Hap Seng company warrant is also called a stock warrant because it is a warrant with the value derived from underlying stock Hap Seng, hence stock warrant.

It is also a call (stock) warrant, the right but not the obligation to convert to the underlying share, as opposed to stock put warrant, one with the right to sell you the underlying stock before expiry.

Posted by kcchongnz > 2013-09-18 11:38 | Report Abuse

LBS Warrant, Wa (180913)

LBS Warrant A is trading at 75 sen while the underlying share is at RM1.71now on 18 September 2013. It has an exercise price of RM 1.00 and the expiry date is on 11th June 2018, or in about 5 years time. The warrant is hence in-the-money with an intrinsic value of 71cents (1.71-1.00). However if you buy Wa at the price now of 75 sen now, you pay a premium of 4.0 sen, or a premium of just 2.3% [(0.75+1.00)/1.71-1]. This premium is low and moreover, there is a gearing of 2.3 times for Wa. Hence Wa appears to be a good alternative in investing in the business of LBS.

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 25%, risk free rate of 3.5%, dividend yield of 1.2% and LBS’s price now at 1.71 shows that the warrant has a theoretical value of 80.5 sen, or 7.5% above its present price of 75 sen.

The following Table 1 shows the settlement price of Wa with respect to the share price of the underlying asset. If LBS goes up to RM 2.50 (a gain of 46%), the settlement price of the warrant is RM 1.51 for a gain of 100%, more than twice that of if you invest in the underlying share. If the share price of LBS stay put at 1.71 at the expiry of Wa, one loses 7%. If the share price of LBS slips below 1.00, the exercise price, buyers lose everything.

The question you have to ask yourself is, What do you think is the direction of the share price of LBS before the expiry of Wa in 5 years time?’

Table 1:
LBS 1.00 1.71 1.80 2.00 2.50 3.00
Wa 0.00 0.62 0.80 1.05 1.51 1.97
gain/loss -100% -5% 7% 33% 100% 167%

My personal opinion is Wa offers a better investing opportunity because of its low premium with some gearing . It also has quite a long time before expiry.

Posted by kcchongnz > 2013-09-18 17:13 | Report Abuse

Freight Warrant, Wa and risk free arbitrage opportunity(180913)

FREIGHT Warrant A is trading at 48.5 sen while the underlying share is at RM1.50 now on 18 September 2013. It has an exercise price of 97 sen and the expiry date is on 8th January 2017, or in about three and a half years time. The warrant is hence in-the-money with an intrinsic value of 53cents (1.50-0.97).

That is right. Even though there is still long time to expiry, Wa’s intrinsic value at 53.0 sen is higher than its share price of 48.5 sen. Buyers of Wa not only getting a free time value, they even got a discount. Here is a risk free arbitrage opportunity. Transaction costs are ignored.

Short sell 100,000 shares of Fright at RM1.50, proceeds of RM150,000
Buy 100,000 shares of Wa at 48.5 sen for RM48,500
Convert to Freight at exercise price of 97 sen for RM97,000
Return the 100,000 converted share to lender
Pay 1% interest cost RM1455

Profit=150,000-48,500-97,000-1455=RM3045

If short sell is not allowed for Freight, borrow money to buy Wa and convert to Freight share. Then sell the converted share in the market. Pay interest. The payoff is the same. In this case there is an execution risk, risk that Freight may trading below RM1.50 when the converted shares come back in a couple of weeks time.

Posted by kcchongnz > 2013-09-19 15:11 | Report Abuse

A review of the company warrants just introduced yesterday.

Hap Seng Wa rises from 55.5 sen to 63 sen
LBS Wa rises from 73 sen to 79.5 sen
Freight Wa No change because no trading at all

The price of company warrant moves with the underlying share. It is assume that the market is efficient.

But how come LBS Wa at 1.80 now, the warrant is trading at a discount when there is still 5 more years to expire and the exercise price is 1.00? That means even though there is still 5 years to expiry, this time value is given free?

Posted by kcchongnz > 2013-09-20 15:56 | Report Abuse

LBS Warrant, Wa and arbitrage opportunity(200913)

LBS Warrant A is trading at 82 sen while the underlying share is at RM1.84 now on 20 September 2013. It has an exercise price of RM1.00 and the expiry date is on 11th June 2018, or in about four years nine months time. The warrant is hence in-the-money with an intrinsic value of 84cents (1.84-1.00).

That is right. Even though there is still long time to expiry, Wa’s intrinsic value at 84.0 sen is higher than its share price of 82.0 sen. Buyers of Wa not only getting a free time value, they even got a discount. Here is a risk free arbitrage opportunity. Transaction costs are ignored.

Short sell 100,000 shares of LBS at RM1.84, proceeds of RM184,000
Buy 100,000 shares of Wa at 82 sen for RM82,000
Convert to LBS at exercise price of RM1.00 for RM100,000
Return the 100,000 converted share to lender
Pay rental of LBS share cost RM1000

Profit=184,000-82,000-100,000-1000=RM1000

If short sell is not allowed for LBS, borrow money to buy Wa and convert to LBS share. Then sell the converted share in the market. Pay interest. The payoff is the same. In this case there is an execution risk, risk that LBS may trading below RM1.84 when the converted shares come back in a couple of weeks time. But then the share could also be higher too.

However, it is better to keep Wa until it moves higher. Why waste the free time value of 4 years and 9 monhts?

Posted by faberlicious > 2013-09-22 15:24 | Report Abuse

KC,how about this warrant YTLPOWR-WB.Trading at 52 sen.
Mother share 1.78.
Discount of 2.81%.
Gearing 3.42%.
Expiry 2018.
Can tikam a bit.Check out also YTLPOWER thread.Very aggressive share buyback.Some say it will go private through share swap(with YTL CORP)

Posted by kcchongnz > 2013-09-22 17:28 | Report Abuse

faberlicious, good one. Always enjoy your contributions. With the discount at 2.8%, and gearing at 3.4, it is good to take the opportunity for a near risk-free arbitrage like what I have described.

But for long-term investing (yeah buy company warrants is not necessary tikam, it can be investing at lower cost compared to the underlying share), I am not sure. This is because there is not much volatility for this type of stock. Warrant's time value depend on volatility of the underlying, the higher the better.

The next thing is its high dividend payment which warrant holders don't enjoy. High dividend lower the value of the company asset, hence adversely affect the value of warrants.

Company buy back shares is a good thing. For one the management thinks that the market value of the share is undervalued. It also increases the EPS, provided the bought back shares are cancelled off. But this is not the case as the buyback is used to reward employees. Hence I think it has no effect on the value of the warrants.

But YTL Power warrant is certainly a safe bet, and may be a good bet when there is a spike of volatility for the underlying.

Hope you can contribute more.

Posted by kcchongnz > 2013-09-29 17:58 | Report Abuse

PANTECH Warrant A closes at 55.5 sen while the underlying share closed at RM0.985 on 27 September 2013. It has an exercise price of RM 0.6 and the expiry date is on 21st December 2020, or in 7.2 years time. The warrant is hence in-the-money with an intrinsic value of 38.5 cents (0.985-0.6).

The value of the warrant is made up of two parts, the intrinsic value of 38.5 sen, and the time value. With the price of Wa at 55.5 sen, the time value is hence equals to 17 sen (55.5-38.5). Is this time value expensive?

Put in in another way, if you buy Wa at the price now of 55.5 sen, you pay a premium of 17 sen, or 17% [(0.555+0.6)/0.985-1]. The gearing is1.8 times for Wa. Is this premium high?

The theoretical value of warrant depends on the price of the underlying share, the exercise price, time to expiry, its volatility, the dividend yield and the risk-free rate; roughly in that order of importance. The Black-Scholes option pricing model, using a historical volatility of 50%, risk free rate of 3.5%, and Pantech’s price now at 0.985 and the dividend yield of 4.5% shows that the warrant has a theoretical value of 43 sen, or 23% below its present price of 55.5 sen.

Put it in another way, with the assumptions mentioned above, the implied volatility of Wa obtained from the option pricing is 81%. This implied volatility appears to be on the high side when compared to the historical volatility of Pantech.

Hence in my personal opinion, Wa though still have a long time to expire, appears to be expensive in view of its high implied volatility. Moreover its gearing of just 1.8 times is not attractive.

Posted by houseofordos > 2013-09-30 12:44 | Report Abuse

kc, what about redtone-wa... currently trading at 4% discount with more than 1 year to go to expiry...

Posted by kcchongnz > 2013-09-30 13:26 | Report Abuse

Yeah, Redtone-Wa at 43 sen is trading at a discount of 2.9% at the present price of its underlying share at 70 sen. However, there is a dividend payment of 1.5 sen ex-dating early next month. This dividend payment would reduce the underlying share price by the same amount when it is ex-dated. So if you take into consideration, the discount is lesser at 0.7%. It is still a discount though. However, the gearing at 1.6 is small and hence may not that "exciting" for punters. Investors on the other hand may prefer the underlying share because of may be anticipation of higher dividend payment in the near future.

If you compare premium and gearing say with Hap Seng, Hap Seng appears to be more interesting. At 2.32 and 64.5 sen respectively for the underlying and warrant, the discount is 1.1%. Moreover, it has a longer expiry date of 3 more years, plus a higher gearing of 3.6 times.

More interesting is Freight Wa which at 49 sen which there is a seller now, it is trading at a discount of 6%, a good gearing of 3.2 and longer expiry date of more than 3 years.

Posted by kcchongnz > 2013-09-30 15:35 | Report Abuse

Such a great opportunity to buy Hap Seng Warrant at 2% discount to the intrinsic value. some more 3 more years to expiry. Some more a gearing of 3.6 times.

What is the catch? I don't know? Inefficient market?

Posted by Avocado_C > 2013-09-30 16:06 | Report Abuse

KCChong, what is the implication to warrant holders in the event that the Company is being taken private or bought over by another company?

Posted by kcchongnz > 2013-09-30 16:34 | Report Abuse

The value of warrant is made up of two parts; the intrinsic value and the time value. For warrants having long time to expiry, the time value is a large part of its value. So if a company is taken private, the warrant loses all its time value. Not good.

Unless the takeover price is very attractive. Then the intrinsic value is high and warrant holders will make money even though the time value is lost.

That is why try buying warrant at low premium, and better still, at a discount.

Posted by Avocado_C > 2013-09-30 17:09 | Report Abuse

Thanks, KC! My impression is that there is no obligation for the acquiror to "compensate" the warrant holders in event of privatisation or take over. Am I right to say so?

Unless the warrant is "in-the-money" (e.g attractive takeover price), then, warrant holders will still make money like what you said. But this is provided that the warrants have to be or intended to be converted into mother shares before the completion date, right?

Posted by kcchongnz > 2013-09-30 17:29 | Report Abuse

If there is a takeover offer, warrant holders can convert to the underlying share when there is an intrinsic value. Why don't they convert if there is money to get back?

Posted by kcchongnz > 2013-10-01 07:16 | Report Abuse

Punchak Warrant B

PUNCHAK Warrant B closes at RM2.36 while the underlying share closed at RM3.14 on 30 September 2013. It has an exercise price of RM 1.00 and the expiry date is on 20th July 2018, or in 5 years time. The warrant is hence in-the-money with an intrinsic value of RM2.14 (3.14-1.00).

The value of the warrant is made up of two parts, the intrinsic value of RM2.14, and the time value. With the price of Wb at RM2.36, the time value is hence equals to 22 sen (2.36-2.14). Is this time value expensive?

Put in in another way, if you buy Wb at the price now of RM2.36, you pay a premium of 22 sen, or 7% [(2.36+1.00)/3.14-1]. The gearing is1.3 times for Wb. Is this premium high?

The theoretical value of warrant depends on the price of the underlying share, the exercise price, time to expiry, its volatility, the dividend yield and the risk-free rate; roughly in that order of importance. The Black-Scholes option pricing model, using a historical volatility of 30%, risk free rate of 3.5%, Punchak’s price now at RM3.14 and the dividend yield of 1.6% shows that the warrant has a theoretical value of RM2.08, or 12% below its present price of RM2.36.

Put it in another way, with the assumptions mentioned above, the implied volatility of Wb obtained from the option pricing is 78%. This implied volatility appears to be on the high side when compared to the historical volatility of Punchak.

Hence in my personal opinion, Wb though still have a long time to expire, appears to be expensive in view of its high implied volatility. Moreover its gearing of just 1.3 times is not attractive. If I am bullish about Puncahk, I will choose to invest in the underlying share rather than the warrant.

Posted by Avocado_C > 2013-10-02 12:43 | Report Abuse

Two cheaper (but not so cheap) options to owning blue chip stocks:
1) Gamuda-WD
Price: RM2.01
Mother share: RM4.70
Conversion price: RM2.66
Conversion ratio: 1:1
Maturity: 25-5-2015
Gearing: 2.33x
Discount: -0.64%

2) IJM-WC
Price: RM1.73
Mother share: RM5.78
Conversion price: RM4.00
Conversion ratio: 1:1
Maturity: 24-10-2014
Gearing: 3.34x
Discount: -0.87%

Posted by kcchongnz > 2013-10-02 13:16 | Report Abuse

Yeah, both Gamuda Wd and IJM Wc are trading at discounts, albeit very small. But both these warrants have been trading at discount most of the time if I am not wrong. Investors who have bet on the discount on Gamuda Wd say before the GE probably have done very well compared to those betting on IJM Wc. Both may have made good money.

The return on investing on company warrants depends mostly on the price and positive movement of the underlying share. How do you feel about the price of Gamuda and IJM share price now? Do you think they are likely to go up? Go up a little or a lot? etc.

The potential warrant investors in IJM and Gamuda appear to view that there may be limited upside on the underlying share, or the construction industry as a whole. Hence this may be the reason that they are not willing to pay any cost for the time value. Just guessing.

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.