Hello bro, just my 2 cts..conversion for safeguard-wa1.20 + 0.15(current price) = 1.35, 1.35- 1.13(mom)=0.22, 0.22/1.13x100% =<20%, anything <30% is considered in money ^V^, am i not correct ?or may be u can refer to someone master in warrant n seek for advice ^V^
Why <30% is consider in money, time factor ! 3 years from now & d upside potential of its mom ^V^
February 13, 2007 9:02 PM
3 comments:
How to value warrants, refer to the guru below
http://investssmart.blogspot.com/2005/08/quick-comment-how-to-value-warrants.html
why take 30% and not 40% , 50%..... ?
I know, I know you can set any % you like....
This is meant for those who are not familiar with warrants. I found out that a lot of traders purchase warrants at exorbitant prices hoping that it will rise according to the mother share but I feel that it is very important to understand the fundamentals on how they should be valued. Warrants should be used as a tool to provide leverage to the mother shares. Gains and losses are magnified using warrants. These are the few rules or factors that determine a warrants value.
First of all, never purchase a warrant that is out of money. Out of money basically means that the mother share is below the exercise price. If you purchase a warrant, whose mother share is below the exercise price, you stand to lose 100% of your money if the mother share trades below the exercise price of the warrant at its expiry date. In Bursa Malaysia, a lot of warrants trade at a discount to its mother share. By purchasing a share that is out of money, you automatically pay a premium.
An important criteria to look for in a warrant is the expiry date. The longer it is, the better. That is because you won't have to exercise the warrant anytime soon and your leverage can last a long time. Try not to purchase warrants with expiry less than a year away. The prices tend to drop as some people who can't afford to exercise it will be forced to sell their shares or else it will turn valueless after the expiry date.
A warrant is directly affected by the amount of dividend the mother share pays. Thus, warrants are best for companies that pay little or no dividends. However, at no times should warrants be trading at a discount until a dividend announcement it made.
Some analysts in Malaysia argue that warrants of companies that pay high dividend should trade at a discount because we need to factor in the dividends at all times. I beg to differ.
This is because in Malaysia, we use American ex-style warrants. Basically, there are two types of warrants, American and European. American style can be exercised at any time we want before the expiry date as long as we pay the exercise price whereas the European style warrants can only be exercised only on its expiry date. In Malaysia, we only use American style. I believe that paying 80c means we purchase it at 80c. I can always exercise the warrant to get the mother share and then be entitled to the dividend as well. The price of warrants should only drop once the dividend announcement is made to adjust to the mother share ex-dividend.
Hope these explanation will help your understanding of warrants.
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