Recently, OSK & CIMB have issued CWs for China Mobile (CHMOBIL-C1 by OSK and CHMOBIL-C2 & CHMOBIL-C3 by CIMB). For this post, I shall ignore CHMOBIL-C2, which is a zero-strike CW because it is too costly in absolute term. The main terms of CHMOBIL-C1 & CHMOBIL-C3 are listed below:
The main reason why we are looking at CHMOBIL is the share price appears to have broken above its strong horizontal resistance at the HK$79.75 level yesterday when the share price gained HK$4.55 to close at HK$80.35 (see the chart below). A possible reason for this bullish development is that CHMOBIL is planning its listing on the super-heated Shanghai Stock Exchange as early as next month (go here). If this breakout can sustain over the next day or two, I expect the share price of CHMOBIL will trend higher. We can benefit from this development by buying either CHMOBIL-C1 or CHMOBIL-C3. From the table above, you can see that CHMOBIL-C3 has a lower premium of 6.9% as compared to CHMOBIL-C1, which has a premium of 15.9%.
Chart: CHMOBIL's daily chart as at June 18 (courtesy of HKEX)
To check on CHMOBIL's share price, you can go here. CHMOBIL's stock code 941.
This is strictly a technical call without any consideration of the company's financial performance & position.
Hi Alex,
ReplyDeleteBut the CWs here are not tracking the underlying very well? Are the market makers doing its job well? How do they make make their money from the ZS?
Besides not tracking well, buyers/sellers are subject to the issuers exchange rate and also a fee for redemption. How much is this fee? How much does it impact the absolute/relative returns?
Forgot to include this link,
ReplyDeleteFrom http://www.warrants.com.my/
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China Mobile up 6% record high, CHMOBIL-C1 and CHMOBIL-C3 no big bang on money - Monday, June 18, 2007
Today is a day when u can be absolutely right on China Mobile and yet not make much money buying its call warrants on Bursa. Both CHMOBIL-C1 and CHMOBIL-C3 up only around 15% and 8% when the underlying is up 6%. Most China Mobile warrants on HK posted gains of 13% to 700%. China Mobile up very strongly today to record high due to proposed Shanghai listing and it only managed mediocre gain for Malaysian listed CHMOBIL warrants. With this kind of risk-rewards ratio, might as well don't buy. If need to, buy from Hong Kong direct.
Hi,
ReplyDeleteYou asked a pertinent question, which is hard to answer. How well a CW tracks the underlying security is a function of the market. If a CW trades at a discount, the holder may choose to exercise the option to convert. Unfortunately, most of the foreign CWs are exercisable in European style, i.e. upon their expiry.
Earlier, you have asked the question of how the issuer make their money from this exercise. Two ways; take the risk upon yourself or sell it off to others. For these foreign CWs, I believe the local issuers, like CIMB & OSK will likely to opt for the latter, i.e. they make their money by acting as the intermediary to parties who want to write these CWs. The writing of CWs can be a way to manage your risks (in an elevated market) or to enhance your return from holding onto your shares. I don't think they make much from exchange rate & incidental expenses.
On the question of exercise expenses, I was told that the amount will be less than RM50.00, irrespective of the number of CWs exercised.
Thank you Alex! The story behind CHMOBIL in HKEX is that they will be relisting in Shanghai, hence the rise. But the HKEX is on holiday today (1 way to take part in the rise up is to buy the local CW while waiting for HKEX to reopen) ;)
ReplyDelete