Structured Warrant is a financial instrument issued by financial institution that gives its holder the right to buy or sell underlying securities at certain price and certain period of time.
Structured Warrant Specification
[Underlying][2 Issuer code][type = C/P][Month of Expiry][Year of Expiry][Unique Code]
Month of Expiry Code
|2||Eligible Underlying||Constituent of IDX30 Index|
|3||Tick Size||Refer to Rules Number II-A about Trading of Equity Securities|
|4||Exercise||Automatically while in-the-money (European style – cash settlement)|
|5||Settlement Price||The average of underlying’s closing price in last 5 days before expiry|
|6||Settlement Cycle||Secondary Market: T+2
Exercise : T+3
|7||Structured Warrant Lifespan||2 months - 2 years|
|8||Trading Hours||Refer to Rules Number II-A about Trading of Equity Securities|
|9||Maximum Price Movement||No maximum price Movement for Structured Warrant|
|10||Auto Rejection||Equal to or exceeds the last traded price of the underlying securities|
|11||Last Trading Date||3 (three) Exchange Days before expiry for Reguler dan Negotiation Market Transaction;
1 (one) Exchange Day before expiry for Cash Market Transaction.
The Advantaged of Structured Warrant
Trading in Structured Warrant needs only small amount of capital to buy or sell underlying securities. The profit expected to be equal as profit in buying and selling underlying securities.
Limited Potential Losses
Investors are entitled to unlimited profit as the underlying’s price fluctuate, but will only suffer from limited losses to the amount of its premium
Put Warrant can be used as hedging instrument by locking selling price of underlying securities. When the underlying price drops, Investors can benefit from trading and/or exercising Put Warrants
Structured Warrants usually have high liquidity because Issuer is required acting as Liquidity Provided and may appoint other Exchange Members as Liquidity Providers (if any)
Type of Structured Warrant
Structured Warrant that gives its holder the right to buy underlying securities at certain price and certain period of time.
Structured Warrant that gives its holder right to sell underlying securities at certain price and certain period of time.
Structured Warrant Trading Strategy
buy Call Warrant if you expect uptrend market on its underlying (Stock)
buy Put Warrant if you expect downtrend market on its underlying (Stock)
Factors Influencing the Price of a Structured Warrant
|Price||Underlying Price||Exercise Spice||Underlying Votality||Lifespan||Dividend Yield||Interest Rate|
the price of Call Warrant will increase if there’s an increase in price of underlying securities. It’s because the possibility of the warrants maturing in the condition of In The Money will increase, while the price of the Put Warrant will decrease because the possibility of maturing In The Money will be smaller. Otherwise, when the price of underlying securities goes down, the price of Call Warrant will go down and the price of Put Warrant will go up
Call Warrants with high exercise prices have a lower possibility of expiring In The Money, and vice versa. Therefore, the price of a Call Warrant with the same underlying securities and expiry date but with a higher exercise price will be cheaper than a Call Warrant with a lower exercise price.
Underlying volatility is one of the determinants of Structured Warrant’s price. Historical volatility reflects price fluctuations from underlying prices over a period of time.
Implied volatility is the expectation of underlying price fluctuations for the validity period of the Structured Warrant. The higher implied volatility of the underlying assets, the higher fluctuation of underlying price so that the possibility of the Structured Warrant maturing in In The Money conditions will be greater and investors can get higher profits from it. Structured Warrant’s price with high implied volatility will be more expensive, for both Call Warrant and Put Warrant. The opposite condition also applies if market expectations of underlying price fluctuations tend to be stable
LIFESPAN STRUCTURED WARRANT
If the time to maturity of Structured Warrant is longer, its price will be higher. It’s because the possibility that underlying prices will move towards the expected price is higher. The longer lifespan also create higher possibility of being exercised.
DIVIDEND YIELD UNDERLYING
Although the underlying dividend yield does not affect Structured Warrant’s price directly, the dividend yield of underlying is tightly related to its underlying price. The higher dividend yield, tend to decrease the underlying price at ex-div period, thus it might lowering the call price.
However, practically, dividend yield may have been included in the Structured Warrant’s price by the Issuer at issuance. Therefore, the dividend yield tends to have a limited impact on the Structured Warrant’s price on the ex-dividend date.
Interest rates affect the Structured Warrant’s price through the holding cost of purchasing underlying to protect the value of the Structured Warrant being sold. Increase in interest rate tend to increase underlying price, thus it will increase the call price vice versa.