10th Nov 2013 - How to calculate premium/discount of warrants

Re: How to calculate premium/discount of warrants

Dear valued members,

I believe the above method to calculate intrinsic value of Warrant is very complicated, I suggest we do it in a practical and easy way so that everyone can use it effectively.

Premium = ((Current Warrant price + Exercise price)/ mother share price - 1)*100%

e.g 1 - Pantech-WA
Closing price on 14/6/2013.
Pantech-WA = 0.485, Mother share (Pantech) = 0.925
Exercise price = 0.60, Expiration date = 2020

Premium = ((0.485+0.60)/0.925-1)*100% = 17.29%

Expiration date is > 1 year, premium <= 20% is acceptable according to current KLSE quotation (practical approach).
Hence buying Pantech-WA at 0.485 is considered to be a good buy (17.29% premium).
Pantech-WA should be 0.51 if it is trading at 20% premium. Any price < 0.51 is considered as a good buy.

e.g 2 - KSL-WA
Closing price on 14/6/2013.
KSL-WA = 0.935, Mother share (KSL) = 2.18
Exercise price = 1.60, Expiration date = 19/8/2016

Premium = ((0.935+1.60)/2.18-1)*100% = 16.28%

Expiration date is > 1 year, premium <= 20% is acceptable according to current KLSE quotation (practical approach).
Hence buying KSL-WA at 0.935 is considered to be a good buy (16.28% premium).
KSL-WA should be 1.01 if it is trading at 20% premium. Any price < 1.01 is considered as a good buy.

Note
If expiration date is < 1 year, premium paid should be <= 10%. Please take note.

I hope all students can make full use of these examples to improve your knowledge and skill. You must practise a few times in order to be good.

Thank you.
Ooi

How to calculate premium/discount of warrants

Dear valued members,

Please note that the warrant price in KLSE is oversold and it is below the theoretical value if using Black-Scholes warrant pricing model to calculate. How do you know the warrant price is undervalued ? I had covered this topic during the gathering held on 3/1/2013. In a bull market, I will concentrate on warrant or call warrant to maximize my profit.

Below is the example of Gamuda-WD warrant, the current price at 0.96 is 0.26 undervalued. I will buy this stock if 2013 is a bull market and I will load or buy big if the buy sign is up.

Gamuda-WD
Expiration date = 25/5/2015
Exercise price = 2.66
Price of Mother share (Gamuda) = 3.58
Price of Gamuda-WD = 0.96
Theoretical price of Gamuda-WD = 1.22
Discount at market price of Gamuda-WD = 0.26
Time value = 0.30
Intrinsic value = 0.92
Premium = 1.11%
Gearing = 3.7

If you think the price of Gamuda can perform in 2013, please buy Gamuda-WD. Please note that Gamuda-WD is traded at 0.26 discount to the current market price of 0.96.

Below is the link can help you :-

http://klse.i3investor.com/servlets/forum/900170036.jsp

If you want to know the profile of the warrant, please use the below link :-

http://www.bursamalaysia.com/market/.../?category=all

If you want to calculate dividend yield, please use the below link :-

http://www.malaysiastock.biz/Corpora...urityCode=5398

If you want to calculate Implied Volatility of the warrant, please use the below link :-

http://www.numa.com/derivs/ref/calcu...n/calc-opa.htm

If you want to calculate theoretical price of the warrant, please use the below link :-

http://www.soarcorp.com/black_scholes_calculator.jsp

Please use interest rate as 3.5% which is the current BLR.

Please try to do this exercise for a few warrant, you should be expert after this exercise.

Thank you.

Ooi