Just look at the following dialogue and you will know

Bully Boy: Doctor, you said you want to teach me a risk lesson. Are the risks of warrants very high?

Dr. Niu: Compared with stocks, warrants have a leverage effect and can amplify risks many times. Once you make a wrong judgment, you are likely to lose everything.

Bullheaded Baby: Huh? ! The risk is higher than stocks, so isn’t it dangerous for me to speculate in warrants?

Dr. Niu: Although the risk is high, as long as you understand the risk profile and pricing mechanism of warrants, the risk can still be controlled and profits can be achieved. Last week, the daily trading volume of warrants in the H-share market reached HK$6.6 billion, which shows that investors are still very motivated to participate in the warrant market.

Bull-Headed Boy: Doctor, please tell me about the risks of warrants.

Dr. Niu: The first is the timeliness risk of warrants. Warrants have a certain period, and the holder should exercise them promptly on or before the expiration date, because the warrants have no value after expiration.

Secondly, warrants have the risk of significant fluctuations in trading prices. For example, on a certain day, the closing price of a warrant is 2 yuan, and the closing price of the underlying stock is 10 yuan. The next day, the underlying stock closes at 9 yuan. If the warrant also drops by the limit, according to regulations, the fluctuation range of the warrant is 125% of the corresponding underlying stock, that is, a drop of 1.25 yuan. In this way, the limit price of the warrant is 2-1.25 = 0.75 yuan. The warrant's decline on the day will reach 62.5%, which is much higher than the decline of the underlying stock.

The multi-headed baby: So scary! It fell 62.5% in one day. If I invested 100,000 yuan, I would only have 37,500 yuan left.

Dr. Niu: I haven’t finished talking yet. There is another type of risk in warrants, which is the risk that the holder will be unable to exercise the option upon expiration. The issuer may be unable to pay the agreed securities or cash to the warrant holders on the maturity date due to various reasons. Therefore, risk prevention when trading warrants should always be given top priority.

Attachment:

Warrants are issued by the issuer of the underlying securities or a third party other than it, and stipulate that the holder has the right to purchase the securities within a specified period or on a specific maturity date. Securities that purchase or sell underlying securities to the issuer at an agreed price, or collect the settlement difference in cash settlement.

A warrant is a contractual relationship between the issuer and the holder. The holder has the right to purchase or sell a certain amount of securities from the warrant issuer at an agreed price within a certain agreed period or within an agreed time period. A quantity of assets (such as shares) or rights. Warrants to buy stocks are called call warrants, and warrants to sell stocks are called put warrants (or put warrants). Warrants are divided into two types: European-style warrants and American-style warrants. The so-called European-style warrants are warrants that can only be exercised on the expiration date. The so-called American warrants are warrants that can be exercised at any time before the expiration date.

The value of a warrant consists of two parts. One is the intrinsic value, which is the difference between the underlying stock and the exercise price; the other is the time value, which represents the holder’s expectations and opportunities for future stock price fluctuations. Under other conditions being equal, the longer the duration of the warrant, the higher the price of the warrant; because American-style warrants can be exercised at any time during the duration, the relative price is higher than that of European-style warrants.

Shanghai Stock Exchange stipulates that if the underlying securities of warrants applied for listing on the exchange are stocks, the underlying stocks should meet the following conditions: the market value of the circulating shares in the last 20 trading days is not less than 1 billion yuan; The cumulative turnover rate of stock transactions on a trading day is more than 25%; the circulating share capital is not less than 200 million shares.

The substantiation of warrants reflects a contractual relationship between the issuer and the holder. After the holder pays a certain amount of price to the warrant issuer, he obtains a right from the issuer. . This right allows the holder to purchase/sell a certain amount of assets to the warrant issuer at an agreed price on a specific date or within a specific period in the future.

What the holder obtains is a right rather than a responsibility. He has the right to decide whether to perform the contract, while the issuer only has the obligation to be performed. Therefore, in order to obtain this right, investors need to pay a certain amount. Consideration (royalty). The difference between warrants (actually all options) and forwards or futures is that what the holder of the former obtains is not a responsibility, but a right. The holder of the latter is responsible for executing the purchase and sale contract signed by both parties, that is, he must Trade the specified underlying asset at a specified price and at a specified future time.

It is easy to see from the above definition that according to the direction of exercise of rights, warrants can be divided into call warrants and put warrants. Call warrants are "call options" among options, and put warrants are "put warrants". options".

Covered warrants are issued by a third party that holds the relevant assets, not by the relevant enterprises themselves. They are generally issued by international investment banking institutions. The issuer owns or has rights to the underlying assets. Covered warrants can be calls or puts, and investors are also exposed to the issuer's credit risk.

Covered warrants are considered structured products. Covered warrants are issued by an entity (usually an investment bank) that is independent of the issuer of the underlying security and its affiliates. The designated asset can be an asset other than an equity security, such as an index, currency, commodity, bond, or basket of securities. The rights conferred by covered warrants can be the right to buy (call warrant) or the right to sell (put warrant).

The meaning of covered means that the issuer deposits the designated securities or assets of the warrant with an independent trustee, custodian or depository as security for its performance of obligations, and the trustee, custodian or The depositary represents the interests of the warrant holders. In some markets, the word "warrant" is used to represent all types of warrants, while in some markets, derivative warrants are used to represent covered warrants.

Butterfly warrants are only the simultaneous purchase and sale of two put warrants with different prices. Or buy and sell two warrants with different prices at the same time. This combination can allow investors to obtain certain profits when the stock price fluctuates within a certain range. If the price fluctuates beyond the range, the investors will not suffer losses. , its income curve is shaped like "__∧__". Because its shape resembles that of a flying butterfly, it is named butterfly warrant.

The combination of a put warrant and a warrant has a yield curve shape of "\__/", which is similar to a saddle. It is called a saddle warrant, also called a wide straddle or a straddle. type warrant. This kind of warrant enables investors to gain income when the stock price falls or rises sharply, but there is no income when the stock price changes little.