What Is a Call Warrant?

A subscription warrant is a stock-derived financial product. It refers to the issue of a certain amount of marketable securities with specific conditions. After an investor pays a premium to hold the warrant, the investor has the right to a certain period (American-style warrant) or a specific time point ( European-style warrants), to buy a certain number of stocks from the issuer at a certain performance price.

Call warrant

Subscription warrants are stock-derived financial products, which refer to the issue of a certain number of

Call warrants

Call warrants profit from rising stocks. When the stock falls below the exercise price of the subscription warrant, the investor may choose not to exercise the subscription right. The loss is the cost of the initial purchase of the subscription warrant. The subscription warrant will expire and become invalid, and the issuing company earns the issue price of the warrant. Conversely, when the stock price rises above the strike price, the warrant subscription rights will be exercised, and the issuing company is obliged to sell the shares to the warrant holders at the strike price.

For example: an investor purchases 1,000 warrants of a stock for 1 yuan, the exercise price is 10 yuan, and the exercise ratio is 1; when the stock market price drops below 10 yuan, the option is not to execute the subscription right, The loss is 1,000 yuan for the purchase of the warrants. Conversely, when the stock market price rises to more than 10 yuan (the investor's cost is the exercise price of 10 yuan + the purchase price of 1 yuan for a total of 11 yuan), the issuing company will sell 1,000 shares to the warrant holder at the price of 10 yuan Someone, the investor gets the corresponding spread gain.

According to different rights to buy or sell, it can be divided into call warrants and

Difference between call warrants and put warrants

The value of call warrants increases as the price of the underlying asset rises, while the value of put warrants increases as the price of the underlying asset decreases.

For holders of tradable shares, subscription warrants and put warrants may differ in the following ways:

First, the risks associated with the combination of "positive stocks + warrants" are different. As the sensitivity of the call warrant and put warrant to the underlying stock is different, as the stock price of the underlying stock rises, the price of the subscription warrant rises, and the price of the put warrant decreases. Judging from the sensitivity of the positive stocks + warrants combination, the subscription warrants will aggravate the systemic risk of the portfolio, while the put warrants will offset some of the risks of stock price fluctuations.

Second, the compensation to shareholders of tradable shares is different. When the stock price declines, the price of the put warrant rises, which will compensate the shareholders of the tradable shares, thereby reducing the break-even point of the shareholders of the tradable shares; and the warrants allow the shareholders of the tradable shares to share in the possible future performance growth Get a cup of tea, but if the stock price is discounted, you will not be able to give the shareholders of the circulating shares much compensation in the short term.

Third, the maturity value is different. As the warrants included in the share reform plan are all settled by stock settlement, this will have a significant impact on the maturity value of the warrants. For put warrants, if the warrants are in-the-money when the warrants are about to expire, that is, the stock price is less than the exercise price, the holders of the warrants will inevitably buy the underlying stocks for exercise. The price of the rights is brought closer, thereby losing the value of the warrants. For the subscription warrants, if the warrants are in-the-money in the expiry period, the holders only need to prepare cash in order to buy stocks from the major shareholders at the strike price, without The stock price of outstanding A shares has an impact. However, after the exercise, the number of tradable stocks in the market suddenly increased. If investors want to make a profit as soon as possible, the stocks will suffer short-term selling pressure, and the stock price will inevitably fall again, causing investors to suffer losses.

Finally, put warrants allow investors to build a variety of investment portfolios, and call warrants can only become a speculative tool for speculators in the absence of a short selling mechanism in the market.