Structured warrants (or "warrants") provide investors exposure to an underlying share for a fraction of the price. The price movements of a warrant are usually much greater than the price movements in the underlying share. This is known as the gearing or leverage effect. For example, if a share price increases by 3%, the corresponding structured warrant price may increase by 30%. Hence, structured warrants provide investors the potential to increase their returns.
Besides that, the capital outlay and transaction costs for structured warrants are lower than the underlying shares. This is due to the lower price of structured warrants, which are a fraction of the underlying share price.
Finally, the most investors can lose is the total price paid for the structured warrants. In other words, the downside is limited.
The gearing feature of structured warrants can result in both favorable and unfavorable outcomes. Similar to magnified gains, trading in structured warrants could also result in magnified losses. However, the total loss is limited to the total price paid for the structured warrants.
Besides that, structured warrants will expire and therefore have a limited life.
Structured warrants allow investors to buy (in the case of a call warrant) or sell (in the case of a put warrant) shares of an underlying company at a fixed price within a fixed period. Buying a warrant will provide investors exposure to the underlying company's shares, for a fraction of its price. For example, if shares of Company XYZ are trading at RM5.00, a structured warrant on Company XYZ might be trading at only 15 sen.
There are two types of structured warrants: call warrants and put warrants. A call warrant increases in price as the underlying share price increases. In contrast, a put warrant decreases in price as the underlying share price increases.
Hence, structured warrants provide investors the opportunity to profit from both bullish and bearish markets.
At expiry, structured warrants are automatically settled in cash and the cash settlement amount (if any) will be paid to investors.
If you are already trading shares on Bursa Malaysia, trading structured warrants is exactly the same. Simply buy and sell structured warrants just like how you buy and sell shares.
Otherwise, visit your nearest Affin Hwang Investment Bank Berhad branch (https://einvest.affinhwang.com/branches) to open the required accounts for trading.
The pre-specified price at which the holder of the structured warrant can buy (in the case of a call warrant) or sell (in the case of a put warrant) the underlying shares.
The number of structured warrants that a holder will need to buy (in the case of a call warrant) or sell (in the case of a put warrant) 1 underlying share.
Structured warrants have a limited life and will expire on the expiry date.
Structured warrants can be European or American-style warrants. European-style warrants can only be exercised on the expiry date. In contrast, American-style warrants can be exercised any time prior to and on the expiry date.
A structured warrant's moneyness is determined by comparing the underlying share price with the exercise price of the structured warrant.
A call warrant is in-the-money (ITM) if the underlying share price is above the exercise price. If the underlying share price is below the exercise price, it is out-of-the-money (OTM).
Conversely, a put warrant is ITM if the underlying share price is below the exercise price. If the underlying share price is above the exercise price, it is OTM.
If the underlying share price is equal to the exercise price, a call or put warrant is at-the-money (ATM).
|Scenario||Call warrant||Put warrant|
|Underlying share price > Exercise price||ITM||OTM|
|Underlying share price = Exercise price||ATM||ATM|
|Underlying share price < Exercise price||OTM||ITM|
A structured warrant's price consists of intrinsic value and time value.
Structured warrant price = Intrinsic value + Time value
The value of the structured warrant if it were exercised immediately.
Call warrant intrinsic value = max(0, Underlying share price – Exercise price)
Put warrant intrinsic value = max(0, Exercise price – Underlying share price)
The value arising from the time left to expiry. This value declines with the passage of time.
The price of a structured warrant is determined by the six factors below.
|Increase in factor||Call warrant price||Put warrant price|
|Underlying share price||↑||↓|
|Time to expiry||↑||↑|