Monday, 1 January 2018

Making sense of Warrants

In my previous post, I mentioned that one of the investment vehicles I want to learn about is Warrant. My intention of buying warrant is to use it as a hedging tool for my existing holdings. I have read about Options and kind of know how they work. SGX has no options for trading, sg's version of options are Structured Warrants. I won't go into the details of its basic as you can go to SGX's website to find out more or simply Google it.


One notable draw back of structured warrant here is that it cannot be exercised to purchase or sell the underlying shares. It can only be exercised upon expiry (European style) if it is in-the-money (ITM). If it is out-of-money (OTM), that means you lose all your capital invested in the warrant aka the insurance premium paid for hedging.


For illustration, I used Macquarie's search tool to find the warrants and below is what I get.



Warrant does NOT have a clear cut relationship with its underlying shares, therefore there are all the statistics you see on the right e.g. delta, gearing etc. Last trading day is 5 days before its expiry date. In choosing a suitable warrant, first we need to understand what these statistics stand for and factor these into our buying decision.

I found these websites very useful in explaining those terms - http://www.thechinfamily.hk/web/en/financial-products/investment/warrants/basics/jargons.html
Macquarie Singapore Warrants education series


The warrants listed on SGX are quite limited. One interesting discovery while I was researching is that there are index warrants on SGX, which we could make use of to benefit from overseas markets' bull / bear without actually having to trade the actual index in that market (although some might say ETF could do the trick too). However, note that foreign index warrants might be riskier due to things like foreign currency exchange, market closing time difference...

I shall go and digest the information now. Too much mathematics haha.

Stay tune for more updates!

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