Hibiscs- the warrant outpacing the share

Hibiscs has rallied very strongly over the past few days on news that it is acquiring a 35%-stake in LIME Petrolium Ltd (go here). My focus is on the divergence between the rally in the share & the warrant from 2.45pm yesterday until now (11.20am). Hibiscs-WA has an exercise price of RM0.50 and expiring on July 24, 2014. At the current price of RM0.50, it is trading at a premium of 26% when compared to the share (currently at RM0.79).

You may notice that the warrant seems to be rising faster than the share, both yesterday & today. This divergence could be a sign of internal weakness, possibly due to retailers chasing the cheaper instrument, the warrant. The warrant rose 8.5 sen to RM0.50 now while the share rose by 2.5 sen to RM0.79. This divergence would eventually be resolved, with either the share putting in a sharp rise or the warrant correcting. I am more inclined to be cautious in this situation because I believe the warrant's sharp rise is likely to be contributed by aggressive buying by retailers and this normally leads to some correction or consolidation.


Chart 1: Hibiscs's 15-min chart as at Nov 9, 2011_11.20am (Source: Quickcharts)



Chart 2: Hibiscs-WA's 15-min chart as at Nov 9, 2011_11.20am (Source: Quickcharts)