Posted by kcchongnz > 2013-09-17 20:38 | Report Abuse

Company warrants and structural warrants Company warrants and structure warrants are two different types of options traded in Bursa. An option provides the holder/buyer the right, but not the obligation, to purchase or sell a certain quantity of the underlying instrument at a stipulated price within a specific time period by paying a premium. Company or stock call warrants are issued by the company to raise money. It gives the holders the right, but not an obligation, to subscribe for new ordinary shares at a specified price during a specified period of time. Warrants have a maturity date (up to 10 years) after which they expire are worthless unless the holder had exercised to subscribe for the new shares before the maturity date. Structured warrants are proprietary instruments issued by financial institutions that give holders the right, but not the obligation, to buy or sell the underlying instrument in the future for a fixed price. For structure warrants, there is no conversion to the underlying share. All settlements only at expiry date and done with cash. Basic Pricing of Options The price, or cost, of an option is an amount of money known as the premium. For example, at the price of the SKP Resources and its warrants (exercise price=45 sen) at 35.5 sen and 7 sen respectively at the close of 17 September, 2013, the premium of buying this company warrant is 46% [(0.07+0.45)/0.355-1]. The buyer pays this premium in exchange for the right granted, or the “option” to exercise the right or allow the option to expire worthless. If before the expiry date the price of the SKP Resources rises above 45 sen, the exercise price, the holder of the warrant can exercise his right to convert to the underlying share. He then can sell the converted share to the market. If the price of the underlying share does not rise above 45 sen before expiry, the holder will just let the option expire without doing anything as he will lose more money doing so. The two components of an option premium are the intrinsic value and the time value. The intrinsic value is the difference between the underlying's price and the exercise price. Specifically, the intrinsic value for a call option is equal to the underlying price minus the strike price. Any premium that is in excess of the option's intrinsic value is referred to as time value. In general, the more time to expiration, the greater the time value of the option. In general, investors are willing to pay a higher premium for more time, since time increases the likelihood that the position can become profitable. Time value decreases over time and decays to zero at expiration. Factors influencing and the pricing of options The six major factors influencing the price of options are underlying share price, the exercise price, the expected volatility, time to expiry, interest rate and dividends. The higher the underlying share price, lower the exercise price, higher expected volatility, higher the interest rate and lower dividend will yield higher option prices and vice versa. For more information about options and their pricing, please refer to the appended link. http://www.investopedia.com/university/options-pricing/ From this site, we will explore the investment opportunities for options; both company warrants and structured warrants. Please feel free to contribute.