passerby

TENAGA-C2

Maturity Date:31/12/2013
Exercise/Strike/Conversion Price:MYR 6.9000
Exercise/ Conversion Ratio=5 : 1

2013-04-04 00:04

passerby

KPJ-CJ

Maturity Date:29/11/2013
Exercise/Strike/Conversion Price:MYR 6.0000
Exercise/ Conversion Ratio=5 : 1

2013-04-04 00:06

kcchongnz

Tenaga Call Warrants 4/4/2013
Which call warrant of Tenaga has the best value?

The following are the prices of Tenaga and its call warrants on 4th April 2013. The gearings of the call warrants varies from 5.4 to 9.0 and most of them area of about 8-9, not much of different.

Tenaga 7.59
CW Price Ex-Price Ex-Ratio Expiry date Premium Gearing
CX 0.195 6.80 5 30/08/2013 2.6% 7.8
CY 0.175 6.50 8 20/09/2013 4.2% 5.4
C1 0.140 7.20 6 31/10/2013 6.1% 9.0
C2 0.185 6.90 5 31/12/2013 3.2% 8.2
C3 0.230 7.10 4 31/03/2014 5.8% 8.2
CZ 0.070 7.38 12 18/11/2013 8.4% 9.0

*CX has the lowest premium at 2.6% but with less than 5 more months to expire. This warrant has the lowest risk. If Tenaga share price can go up by just 2.6% to 7.78 before the expiry of CX, holders of CX bought at the price now would make a profit.

*C2 has the next lowest premium. As it has a longer expiry time than the rest to 31/12/2013, except for C3, it is undoubtedly a preferred call warrant to buy than the rest whose expiry dates are shorter and with a higher premiums such as CY, C1 and CZ. Holders of C2 would make money if Tenaga share price goes up by 3.2% to 7.83 before the expiry of C2.

*C3 has the longest expiry time of about a year. The premium is however relatively high at 5.8% when compared to CX and C2.
So out of the three call warrants of Tenaga above which have different exercise prices and dates of expiry, which is the best to punt?
One of the ways to determine which warrant of the same underlying share has better value is to use the Black-Scholes Option Pricing Model. Using a volatility of 30% for Tenaga, risk-free rate of 3.5%, and dividend of 30 sen per year, the option values are shown below:

CW CW price Option value Ex-ratio CW value Pre/Dis
CX 0.195 0.998 5.0 0.200 -2.3%
C2 0.185 1.087 5.0 0.217 -14.9%
C3 0.230 1.071 4.0 0.268 -14.1%

The call warrants of C2 and C3 both appear to be better punts as the OPM shows they are trading at bigger discount of about 15%, and with a gearing of 8.2. The implied volatility of both is about 24% which is considered as reasonably low considering that the mother share price has been exhibiting high volatility recently.

What do you think?

2013-04-04 12:13

passerby

I'm going for C2.

Theoretical gearing for C2 & C3 almost similar but a unit price of C2 is cheaper than a unit price of C3. C2 got more advantage over C3

Expiry date - even though C3 has longer expiry than C2, in my opinion, it doesn't give any advantage to C3 because most of the time, trader don't hold CW until expiry.With > 6 months life span, you can play a few rounds safely already. Anything comparison for the lifespan more than that is meaningless because there will always be a new CW being issued by market maker down the road.

Option pricing - I don't use this one for comparison :)

Hence, I'll go for C2. That's for picking the best CW to punt among the all available Tenaga CWs. The pick will however be meaningless if mother share don't move :)

But, 1 good indication the punt should be ok at this moment, out of the 6 available CWs, 4 of the CWs price actually closed above 0.15 :). Meaning = the underlying is obviously on the up trend cycle.

2013-04-04 21:43

kcchongnz

"a unit price of C2 is cheaper than a unit price of C3. C2 got more advantage over C3"

C2 and C3 each has its different exercise price and conversion ratio. Hence it doesn't mean the price of C2 is lower and hence more advantage. In this respect, you probably have to look at the premium, and it happens that the premium of C2 is about half that of C3, and hence better value. Then again, CX has a even lower premium, then how to decide?

I do agree with you that it is a good punt for Tenaga call warrant. My rationale is the share price of Tenaga has been quite volatile recently. The volatility of the underlying share (hence the intuitive of the option pricing model), does contribute to the value of the warrant; because being volatile, meaning go up and down in a big way, gives a better chance for the warrant to attain bigger payoff.

2013-04-05 08:55

passerby

actually if you don't hold it until expiry, all those premium, exercise ratio & exercise price actually meaningless :)

unless if you are intending to hold it until expiry, then you really need to look at it carefully :)

for me, i usually don't hold until expiry - holding period as short as few minute to less than a month.

as long as the premium range fall within acceptable range, sufficient lifespan > 6 months ( at least some time to wait for rebound to cut loss, if the pick fails miserably ),

the final decision - the unit price of the CWs

why not the lowest premium ? if the market maker not a fair type, no matter how low the premium advantage you get, you will get screw up if they don't queue to buy & sell fairly with sufficient volume. The reputation of the market market counts ! hence, as long as it fall withing acceptable range, it is ok ( <10% )


if you compare CX, C2 & C3, all 3 are from CIMB IB, premium all within acceptable range, gearing almost similar, the price all closed above 0.15 ( in money ), which one will you pick to enjoy the short ride? the one with the heaviest cost or the one with lowest cost knowing that you won't hold until expiry ? any tendency to go for C2 :) ?

CX 0.195 6.80 5 30/08/2013 2.6% 7.8
C2 0.185 6.90 5 31/12/2013 3.2% 8.2
C3 0.230 7.10 4 31/03/2014 5.8% 8.2

2013-04-05 15:54