Tuesday, July 14, 2020

Glove Put Warrants Rally: Just Ignorance?!

Yesterday we saw a massive rally for the 2 put warrants for the high-flying glove stock Topglov and Supermx. Given the big rally enjoyed by all glove stocks, it makes sense to contemplate buying into these put warrants for a high risk, high reward play. Alternatively, some may consider buying them as a hedge or an insurance policy to protect their portfolio of glove stocks since the prices of put warrants would move higher when the prices of the underlying stocks dropped.

Chart 1: Supermx-HB's daily chart as at 14 July 2020_10.45am (Source: Malaysiastock.biz)

Chart 2: Topglov-HA's daily chart as at 14 July 2020_10.45am (Source: Malaysiastock.biz)

However, the trading for these put warrants yesterday was way beyond expectation, to say the least. Topglov-HA rose from 6.5 sen to 20 sen while Supermx-HB rose from 6 sen to 23.5 sen. Normally when you see a put warrant price going higher, you would expect to see the underlying share price going down. Not for Supermx and Topglov share prices yesterday! Both share prices rose sharply, with Supermx increased by RM2.36 to RM15.98 and Topglov increased by RM2.08 to RM24.00! What's going on here! This reminded me of the screen from the movie "Cats in the Hat" where we should all drive (here).

There is only one logical explanation for this: Ignorance! But the ignorance here also advertised the extreme euphoria in the glove stocks rally may be begin reaching an unsustainable level. But I could be very wrong. This fantastic rally has turned the famous phrase "irrational exuberance" by former Fed chairman, Alan Greenspan on its head.

I have reproduced here the table of valuation of the 2 put warrants, below. It was extracted from KL Warrant Screener (here).

Table: Topglov-HA and Supermx-HB valuation table 

This may be just numbers to some punters. If you really want to see how extreme these numbers are, check out the article entitled "The Glove Put Warrants Poser" in the Edge CEO Morning Brief today (July 14, 2020). I will paste here a snippet that might just do the job.

Notwithstanding your outlook on glove stocks, which I assume is bearish otherwise you should not get into the put warrant, the present premium for the 2 put warrants is simply unjustifiable. Be very careful what you are buying. Good luck!!

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