What a Warrant means……. Hi, my dear readers : A lot of people talking about what a “Bull Run” stock market down
the road in year 2007 & 2008, at the same time warrants are playing a big role in this type of uptrend market. It brings a huge profit when the market goes up.. Here my intention is to define some “keywords” or “special words” used in warrants playing. Cos some of these definations always confuse the genuine investors who are really making investment in due cause. (1) WARRANTS are securities issued by a company. They give holders the right to purchase shares in the company at a specific price at a specific date in future. Warrants are tradable and the value will go up and down as the price of the shares to which they relate (the
underlying share or mother share) goes up and down. Warrants have no right to dividends and no voting rights. (2) OUT OF THE MONEY If the underlying share price is below the exercise price,the warrants are “out of the money” and are deem worthless. (3) IN THE MONEY If the underlying share price rises above the exercise price,the warrants are “in the money” and worth something. (4) PREMIUM measures the amount (in %) an investor is willing to pay for a warrant in excess of the market value of the underlying securities to enjoy the returns by buying the warrant. Premium = <(Warrant Price + Exercise Price) – Underlying Share Price> / Underlying Share Price (5) GEARING measures the ratio (or units) of warrants one can purchase with an investment in the underlying
security or mother share. It is a ratio of mother share price over warrant price. Gearing = Underlying Share Price / Warrant Price (6) EXPIRY DATE After this date, the warrant holder loses the rights to purchase or sell the underlying security. (7) EXERCISE PRICE The predetermined price that the warrant holder is entitled to purchase or sell the underlying security. (8) EXERCISE RATIO The number of warrants required to exercise into one share of the underlying security. These are parts of the “keywords” in use. And there are still some on the way, pls follow through in my next publish (if interested) – in Part 2.. All the best to all readers and investors, Happy New Year.