You can gain leveraged exposure to the underlying stock or index without actually owning it and
for a fraction of the full price of owning the stock. Structured warrants enable investors to
take a position based on their view of the performance of the underlying asset in bullish and
bearish market conditions. You can also use put warrants to hedge against the downside risk of
your investment holdings.
As a Maybank Securities client, you can take advantage of the wide range of financing facilities available. In addition, you will always have flexibility, choice and market information at your disposal whether you choose to trade online and through our Trading Representative.
A structured warrant is a form of structured investment products issued by a third-party
financial institution over a wide range of assets, including the shares of an un-related listed
company, a basket of companies' shares or an index, and traded on SGX.
Structured warrants can be issued either as a call or put warrant. A call (or put) warrant gives the holder a right, but not the obligation, to buy from (sell to) the issuer the underlying asset at a predetermined price, also known as the exercise price, on or before the expiry date, depending on the exercise style of the warrant.
In general, structured warrants enable investors to express their view of the performance of the underlying asset in a bullish or bearish market, at a significant degree of leverage over the life of the structured warrant. In addition, put warrants may be used by investors to hedge against the downside risk of one's investment holdings.
Warrants have a fixed tenure and, if not exercised, are worthless after their expiry date.
A call warrant gives the holder a right, but not the obligation, to buy from the issuer the underlying asset at a predetermined price, also known as the exercise price, on or before the expiry date, depending on the exercise style of the warrant.
A put warrant gives the holder a right, but not the obligation, to sell to the issuer the underlying asset at a predetermined price, also known as the exercise price, on or before the expiry date, depending on the exercise style of the warrant.
|Position: Buying a Call||Position: Buying a Put|
|Typical Market View||A bullish view of the price/level of the underlying asset over a certain time period.||A bearish view of the price/level of the underlying asset over a certain time period.|
If position is unwound before maturity
Difference between sale price and purchase price of the warrant.
If position is held till maturity date
Difference between cash settlement amount (i.e. the difference between the current share price and the warrant exercise price) and purchase price of the warrant.
|Potential Loss||Total premium paid.||Total premium paid.|
While SGX Securities Trading provides the infrastructure for warrants to be traded, neither SGX Securities Trading nor its subsidiaries in any way guarantee the performance of the warrant issuer or the warrants issued.
|Factor Movement||Effect on Theoretical Value of Warrant||Remarks|
|Price of the Underlying Asset||An upside movement in the underlying security makes a call warrant more valuable and a put warrant less valuable.|
|Exercise Price of Structured Warrant||A high exercise price reduces the probability of a call warrant being exercised and increases the probability of a put warrant being exercised.|
|Volatility of the Underlying Asset||
The higher the price fluctuation of the underlying asset, the greater the potential
for the structured warrant to trade in-the-money.
There are typically two types of volatility for a structured warrant: Historical volatility measures the actual price change of the underlying asset over a certain past period.
Implied volatility is the market perception of the volatility of the underlying asset over the lifespan of the warrant as reflected by the price of the warrant and is determined through a theoretical pricing model.
|Time to Expiry of Structured Warrant||The shorter the time to expiry, the lower the probability the price of the underlying asset will move in favour of the warrant holder. That is, the time value of the call and the put warrant will decrease as they approach expiry. This relationship is however, not direct, hence, the time decay of a warrant's value through time is not constant.|
|Interest Rates||As interest rate increases, the value of the call warrant increases and the value of the put warrant decreases.|
|Dividend of Underlying Asset||
Cash payments on the underlying asset tend to decrease the value of a call warrant because it makes it more attractive to hold the underlying asset.
In practice, expected dividends are most often priced in the value of the structured warrants when issued by the issuer. Thus, dividend yields of the underlying asset have little impact on the prices of structured warrants on ex-dividend dates.