When the fund has a premium in the secondary market, investors can use the difference between its net value and the net value of OTC funds for arbitrage. For example, when the etf price in the market is greater than the net value, investors will buy a basket of stocks from the secondary market, then convert them into etf fund shares in the primary market according to the net value, and then sell ETFs at high prices in the secondary market to complete arbitrage.
Fund premium means that when the fund is issued, the demand is greater than the supply, and the issue price of the fund is greater than the value of the fund itself. The transaction price of the secondary market trading fund is not equal to the net value of the fund. When the transaction price is higher than the net value of the fund, it is a premium transaction. On the contrary, it is a discount transaction. Fund premium is generally traded in the secondary market (stock market), that is, the transaction price is higher than the net value of the fund, and vice versa. Traditional closed-end funds are mostly discounted, and innovative closed-end funds often have a premium when they go public, mainly because of the scarcity of products, which leads investors to pursue products.
Premium means that the amount actually paid exceeds the par value or face value of securities or stocks. On the other hand, in the fund, it refers to the value that the transaction price in the closed-end fund market is higher than the net asset value of the fund unit. Premium means that the transaction price exceeds the face value of the securities, and as long as it exceeds, it is called premium. Premium space refers to the part where the transaction price exceeds the face value of the securities.
With regard to risk premium, investors demand higher investment returns to compensate for uncertainty for risky assets. This necessary rate of return compensation beyond the risk-free rate of return is the risk premium. Risk premium is also called risk reward. Risk reward is the extra reward required by investors for taking risks, which exceeds the risk-free reward.
The premium is higher than the original price, so the premium rate is a higher percentage. In the securities market, people often refer to the premium rate data as an evaluation to measure the risk of warrants.
The calculation method of insurance premium rate is as follows:
Warrant premium rate = (exercise price+warrant price/exercise ratio-positive share price)/positive share price.
Put warrant premium rate = (positive share price+put warrant price/exercise ratio-exercise price)/positive share price.
As can be seen from the above formula, the premium actually depends largely on the stock price and the warrant price, and the warrant price will decrease with time.
If the exercise price is higher than the stock price (out-of-price warrant) and the warrant price is all time value (that is, there is no intrinsic value), then the calculated premium will be higher. Conversely, if the stock price is higher than the exercise price, the time value included in the warrant price is low, and the calculated premium is relatively low.