So how do we really trade warrants on the SGX. You will be able to find the barebone basics to start trading warants here.
There are two types of warrants traded on the SGX:
-Company warrants
-Structured warrants
They are the same except that company warrants are issued by the underlying company itself while the latter are issued by a third party financial institution.
Terminology:
Call warrant: a right to buy
Put warrant: a right to sell
Expiry date: date when all proceeds(if any) of the warrant has to be settled
Exercise price: -
In-The-Money: -
Conversion ratio: number of warrants needed to exercise into 1 unit of the underlying asset
Exercise style: European(can only be exercised at expiry date) or American(can be exercised anytime between the warrant's issue and expiry date)
Underlying assets: -
Cash Settled: means investor recieves the proceeds in cash on the expiry date if the warrant is in-the-money
Deciphering name of Warrants listed on SGX.
The name consist of 4 parts as follows.
ABC: Underlying Asset
XXX: Issuer
ECW:European exercise style, call warrant
070520: expiry date on 2007 may 20
What is a fair price of a warrant?
Although a fair price is fairly "subjective" since it depends on the investor's willingness to pay, we can arrive at a approximate price using option pricing tools like the Black-Scholes model... These calculators can be easily found on the web.
Uses for warrants:
Warrants are similiar to stock options and futures, and hence could be used for hedging. They could also be used to expose the portfolio to a greater risk to the underlying with lesser capital(leveraged).
References:
