Thursday, October 01, 2009

Put Warrants- Is it the right time to look at them?

Today, we have the listing of 3 new Put Warrants ('PW') which were issued by OSK Investment Bank Bhd. I have tabulated the comprehensive list of all PWs listed on our exchange.

If you are having a bearish view on a market or a stock, you may consider buying a PW. For example, if you are bearish on Axiata, you may buy 5 units of Axiata-HA to acquire an exposure equivalent to 1 share of Axiata. This will cost you RM0.775 (i.e. 5 x RM0.155) and in return you have the right to put (or, sell) 1 share of Axiata to the writer of Axiata-HA (i.e. OSK) at the exercise price of RM3.40. When would you make money? When/If Axiata share price dropped to RM2.625 (i.e. RM3.40 - RM0.775). That means you would only make money if Axiata declined by 16.67% from its present price of RM3.15. On the other hand, if Axiata share price rose to RM3.40 or higher, the PW would be worthless & you would lose the entire sum of RM0.775. Finally, if Axiata share price is between RM3.40 & RM2.625, you would lose money but not the entire sum of RM0.775.

The question to ponder is whether Axiata going to drop to RM2.625 or lower on its expiry date. Not likely in my opinion. What if Axiata-HA declined to RM0.08? Is it worth considering? I think so. By spending RM0.40 on 5 units of Axiata-HA, you would have acquired an exposure equivalent to 1 share of Axiata. If Axiata were to drop below RM3.00, your 5 units of Axiata-HA acquired at RM0.08 each would be profitable bet.

4 comments:

wcheow said...

if i buy only 1 unit HA? can i?

how to count earning? if i have 5 units with rm0.08, and axiata drop to 2.90, i get 10cent x 5 units?

Gagan said...

http://m-athew.blogspot.com/

Alex Lu said...

Hi WCheow,

The 1 unit of Axiata-HA is purely for illustration purpose. You have to buy in board lot of 100 units each.

I don't get your second question. If you are asking how one makes money speculating on PWs, then think about how you can make money speculating on CWs & then do the exact opposite. For PWs, you would look out for the following:
1. A reasonable premium; and
2. A bearish outlook for the underlying security.

For example, if the FBMKLCI breaks below 1200, you may consider FBMKLCI-H1. Unfortunately, the premium is way too high.

Alvis said...

Hi! Can I know that now i have acquired 40,000 units of Axiata-HA at RM0.065, and its expiry date is coming soon but I don't hold any of the parent(Axiata)share now, today the HA dropped to RM0.025 only. So, can I know how should I do for me to mitigate my loss on the HA share assuming that the HA share price won't rise to RM0.065(my purchase price that time)or above?If I want to convert the right share to the parent share,is it I must convert it into 8,000(40,000/5)units of Axiata at RM3.40,total will cost me RM27,200? Please advice!