Showing posts with label KNM. Show all posts
Showing posts with label KNM. Show all posts

Tuesday, 21 July 2015

KL: Call warrant analysis

Recently, MYEG touched a low of RM 2.40 on 16-6-2015 and a high of RM 3.03 on 2-7-2015 in 2 weeks time, equivalent to a ~26% return. If you leverage your capital by trading call warrants instead of the mother share, what would be your return then?

MYEG trend


Call warrant^ Low High Return
MYEG-CD* 0.340 0.480 41.2%
MYEG-CG* 0.190 0.325 71.1%
MYEG-CH 0.185 0.320 73.0%
MYEG-CI* 0.030 0.105 250%
MYEG-CJ 0.080 0.200 150%
MYEG-CK 0.060 0.145 142%
MYEG-CL 0.075 0.160 113%

* MYEG-CD,CG and CI expire on July, September and August 2015 respectively.
^ MYEG-CM was issued after 16-6-2015 and hence it was not included here.

The above table summarizes the return for MYEG call warrants. Based on How to choose a call warrant, the first priority is that the mother share must possess strong fundamental. For this criterion, MYEG is a no-brainer.

Next, look for the maturity date. This means that CD, CG and CI will be out of my sight. While CI secured the highest return in 2 weeks time, this is not a risk that I would take.

Then, look for the premium, gearing and volume. CH was good back then, but its gearing is comparatively low now, meaning a lower risk and lower return/loss. For a higher gearing, both CJ and CK are satisfying all criteria. As CJ has a lower exercise price and a lower conversion ratio, if I were to trade, CJ will be my pick. It turned out that CJ is indeed the best choice. It wouldn't be too hard to choose a call warrant in this way.

Another handy information is that we can actually know how much these call warrants were held by the issuer at the end of each month. If you go to Bursa Malaysia website > Listed companies > structured warrants. In the announcement category choose "Issuers' announcement", you will see this type of announcement:

ANNOUNCEMENT PURSUANT TO PARAGRAPH 5.35(4) AND 5.35(5) OF THE MAIN MARKET LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD

RHB

You will see that for MYEG-CJ, 64.68% of warrants are not held by the bank, i.e., a huge portion of warrants are held by other people. It may be big fish or retail investors. Either way, when the bank is no longer the market maker, the buy/sell queue volume will be low (e.g., from 5000 lots per bid to 1000 per bid) and this provides another criteria to choosing a call warrant.

While call warrant could bring you high returns in short time, it is a double-edged sword product. It can accelerate your capital growth or completely ruin your financial dream. My principle is to only trade call warrants with strong fundamentals mother share. INARI is an example, MYEG is another. Call warrant for shares like KNM, no matter how attractive they are, will be completely blind to me.