A warrant is a stipulated warrant issued by a joint stock company, which can buy or sell the company's shares within a specified time, and options are also our common contracts with stocks as the subject matter. So are call warrants similar to options? What is the difference between certified equity and options? The following is an introduction to you, I hope it can help you. This article comes from: Option Sauce
1. What is a subscription certificate?
The subscription warrant is a kind of stock derivative financial product, which means the issuer issues a certain number of securities under specific conditions. After the investor pays a certain premium to obtain the warrant, he or she has the right to issue the warrant at a certain performance price within a certain period of time. People buy stocks with certain technical indicators, so the subscription warrants can also be called call warrants.
A call warrant gives the warrant holder the right to purchase related stocks at the exercise price within a specific period. Call warrants generate profits through increases in the underlying shares.
If investors are optimistic about the future performance of related assets, they should buy call warrants. When the market price of the underlying asset is higher than the strike price, investors can theoretically buy the underlying asset at the strike price and then sell it at the market price to earn the difference. Since warrants are now settled in cash, investors will receive the cash difference between the settlement price and the exercise price. On the contrary, if the market price of the underlying assets is lower than the exercise price, the warrant will have no value and investors will lose the cost of purchasing the warrant.
The above profit model assumes that investors hold the warrant until the expiration date. In addition, investors can also make profits by buying low and selling high, which is not much different from buying and selling stocks.
2. Are call warrants options? Call warrants are similar to options .
A call warrant refers to the obligation of the institution that issues the call warrant to sell the corresponding stock to the holder at a certain time and price in the future, and the holder has the right to purchase the stock at the agreed price within the exercise period. Rights, not obligations.
The value of a call warrant increases as the price of the underlying asset increases, and the value of a put warrant increases as the price of the underlying asset decreases.
For shareholders of tradable shares, there are some differences between call warrants and put warrants:
First, the risks of the combination of "original stocks + warrants" held are different. Since call warrants and put warrants have different sensitivities to the underlying stock, as the stock price rises, the price of the call warrant rises and the price of the put warrant falls. From the perspective of the sensitivity of the "underlying stock + warrant" combination, the call warrants will intensify the systemic risk of the combination, while the put warrants will hedge part of the risk of the underlying stock's stock price fluctuations.
Second, the compensation for shareholders of tradable shares is different. When the stock price of the underlying stock falls, the price of the put warrant increases, which will compensate the shareholders of tradable shares for their losses, thereby reducing the break-even point of shareholders of tradable shares; while the subscription warrant allows shareholders of tradable shares to share in the possible future performance growth. However, if the stock price is discounted, there will not be much compensation for shareholders of tradable shares in the short term.
Third, the maturity values are different. Since the warrants included in the current share reform plan are all delivered in the form of stock settlement, this will have a significant impact on the expiration value of the warrants.
For put warrants, if the warrant is in-the-money when it is about to expire, that is, the stock price is lower than the exercise price, the holder of the warrant will inevitably buy the underlying stock in order to exercise the option, and the buying pressure may cause the stock price to move upward. The price of the rights moves closer, causing the warrants to lose value;
As for the subscription warrant, if it is an in-the-money warrant before expiration, the holder only needs to prepare cash to buy the shares from the major shareholders at the exercise price, without any impact on the stock price of the circulating A shares.
However, after the option is exercised, the number of tradable stocks in the market suddenly increases. If investors want to take profits as soon as possible, the underlying stock will encounter short-term selling pressure, and the stock price will inevitably fall again, causing investors to suffer losses.
3. The difference between call warrants and options
1. Warrant: The holder of the warrant can buy or sell the shares of the company issuing the warrant at an agreed price within an agreed time. Warrants are linked only to shares.
2. Options: To buy or sell options, you can buy or sell the contract within the agreed time, or you can make physical delivery on or before the expiration date. Options are linked to stocks, but their underlying objects are not limited to stocks. They can also be stock indexes, commodity futures, currencies, etc. The underlying objects are diverse.