Call Warrant updates as at January 19, 2007

The call warrants' prices increased by 11.54% since last Friday (January 12) as compared to a 3.10%-increase in the underlying share prices. The average premium has declined from 9.66% to 9.21% (see Table 1 below).


Table 1: Changes in Call warrants' prices, underlying share prices & premium from Jan 12 to Jan 19

The usual Call Warrants update is posted here as Table 2. The cheap call warrants (those trading at a discount or at a premium not exceeding 6%) are highlighted in yellow while 2 call warrants that are due to expire in January 2007 (i.e. Astro-CA & Scomi-CA), have their expiry dates highlighted in pink and the 4 call warrants that are due to expire from February to April 2007 (i.e. BJToto-CA, Bursa-CA, IOI-CA & TM-CB) have their expiry dates highlighted in orange.


Table 2: Call warrants' intrinsic value & premium as at Jan 19

In my post last week, I've stated that "The weakness amongst the blue chips may be a sign that the market is entering a different phase where the players have begun to shift their attention to second- & third-liners." I've come to this conclusion based on the observation that "...the majority of the underlying shares (for which the CWs were derived) are not making higher 'highs'". The market has shown in the past few days how wrong that statement was. We have seen how the blue chips have overcome strong resistance as well as testing or surpassing their recent "highs". Nevertheless, the majority of the CWs have yet to exceed their "highs" in December last year. One plausible explanation is that the gain in the intrinsic value of the CWs (which resulted from gains in the underlying share price) could not match the erosion of the time value of these CWs.

Before I leave, I like to share another observation, which relates to the YTL technical breakout story that I've highlighted earlier. I'm beginning to wonder whether this breakout is a genuine breakout or just an elaborate play, involving the underlying share, the 2 company-issued warrants (YTL-WA & YTL-WB) as well as the CW (YTL-CA). The centerpiece of this play is an mis-priced CW (mis-priced because it is overpriced when compared to the other warrants that derived their value from the same underlying share).


Table 3: YTL-CA, YTL-WA & YTL-WB's prices and premia as at Jan 18, 2007

How does it work? Firstly, issue a CW (i.e. YTL-CA) at the normal premium that CWs are issued in the market. Secondly, let the investors discovered that the other warrants (i.e. YTL-WA & YTL-WB) are cheaper than the CW issued and began to accumulate these cheaper warrants (see Table 3 above). Thirdly, the price of the cheaper warrants began to rise. Fourthly, the underlying share also began to rise (no thanks to bloggers like this one). Finally, the CW also began to rise. Any complaint so far? Or, shall we just celebrate the virtuous cycle of wealth creation.

This story is possibly not true. In all probability, it might just be my mind playing games with me. But, I just can't figure out who would subscribe for a CW like YTL-CA when there were cheaper & better alternatives out there? YTL-CA was issued at a premium of RM1.71 while YTL-WA & YTL-WB were trading at a small discount of RM0.19 & RM0.08, respectively on the same date (see Table 4 below). Curiouser and curiouser???


Table 3: YTL-CA, YTL-WA & YTL-WB's prices and premia as at Dec 18, 2006