Monday, July 13, 2020

Gimme Your Money

How in hell can two put warrants go record over 500m shares traded, and on a day their mother shares have been going up???

My very first job in the industry was as a warrants specialist in Japan, so I like to think I can still calculate premiums and such.

TOPGLOVE HA - Its a put warrant, which is a right to SELL the shares. The ratio is 50:1, which means you have to buy 50 units of the put warrants to sell one share of Topglove. The exercise price means you then have the right to sell at RM12.00. (Sorry if I am sounding condescending but too many newbies in the market place jor).

Look at the time to maturity, its 26 February 2021, just after CNY.Hence if you bought at 25 sen, to have the right to sell one thousand shares. You are looking at:

25 sen x 50,000 = RM12,500, paying for the put warrant only gives you the right to sell at RM12.00. Who wants to sell now when Topglove is at RM24.00... nobody. People can still buy put warrants when they are bearish or want to hedge their long positions. But you know things like brain cells went out the window when the put warrants went up a few hundred percent when the mother also went up by 9%. The probable explanation is they thought they were buying CALL WARRANTS. Cannot be that silly right?

Or can they? You need a license to own a gun, you need to take driving test before you can drive a car or fly a plane. You need a handicap certification before you can play at good golf courses. STOCKS ... you got money, please press play and ruin your lives.

Back to calculation, so you are out RM12,500. RM24.00-RM12.00 = RM12.00 (that's the amount of price differential before the plain put warrant starts making you money). Condescendingly, that means the share price has to drop 50% BEFORE the put warrant starts making money.

So the PREMIUM you are paying  is RM12.00 + RM12.50 / 12.00 = 204%. TWO HUNDRED and FOUR PERCENT PREMIUM!!!! Plus a time to expiry of less than 10 months. Beautiful, just beautiful.

For such a put warrant, even taking into account its volatility, the range of fair premium should be between 30%-60%. No more.

There is absolutely no reason to pay over 200% premium for a short life put warrant or call warrant. Even if you are EXTREMELY BEARISH, there is a set structure of "valuation". Anything out of that scope would be termed as burning money... do it during Cheng Meng, not in the market.

Basically, you can do the same calculations with Supermax HB. Both are hyper OVER valued. Expect massive correction. The issuing bankers are printing money as we speak.

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