QUOTE(WinDs @ Dec 19 2006, 08:44 PM)
Thanks Lklatmy.
That is very helpful for me i must admit.
Anyhow I've just figure out about the delta. However i am yet to understand the term ' settlement price ' and ' strike price '
So in this case, if I want to exercise the warrant, I will only make profits when
1. the A share price is at RM2.50 or more; since I pay RM0.50 for the warrant and the cash settled by
current share market A price, RM2.50 -
Exercise Price, RM 2.00 = RM0.50 ?
2. I sell the A-CW at a higher price than RM0.50 at the stock market
The most profit margin will be likely coming from selling A-CW at higher price but it's hard to achieve that since the warrant will be expired in a certain period which results in decreasing A-CW price as it getting nearer to the tenure deadline.
Thanks all.
Both your examples above are correct.
As for the last part concerning selling the CW at higher price to make profit and the assertion that it's hard to achieve is not totally correct,There are many CWs listed in Bursa that are way above their IPO price now.Nevertheless,IMHO,many of these CWs are grossly overpriced(out of the money) and may tumble if the market takes a correction.Holding on to these loosing CWs is the natural thing that most retail player will do in that situation and as you said,when the expiry date draws nearer,the price of the CWs will only decrease further.I think many retail players are not well verse with the characteristic of CWs and many will get badly burn 6 months from today when many of the existing CWs will be expiring.I must also add that of course,if the market suddenly turn bullish,the price of the CWs will also go up.
Some elaboration on "strike price" and "settlement price".
Strike price also known as exercise price is the reference price set by the issuer of the CW where the holder of the CW is entitle to purchase the underlying mother share, regardless of the existing market price .Eg,Maxis-CA with a strike price of RM8.11 enttles the holder of the CA to purchase from Khazanah (the Issuer),Maxis shares at RM8.11 although the current market price of Maxis is Rm10.
Settlement price is the reference price used in the process of cash settlement of CW.It is the previous day's closing price in most instances if settlement is requested before expiry of the CW.If the settlement is for CW outstanding at the point of expiry,then the settlement price is the weighted average of the last five trading days.
I have appended below the terms and conditions of Astro CW that is issued by CIMB and will be listed soon.The part concerning determination of settlement price has been highlighted in blue.
Summary of principal terms of the Astro CW
Issuer : CIMB
Guarantor : CIMB Bank Berhad (formerly known as Bumiputra-Commerce Bank Berhad)
Underlying Shares : Ordinary shares of 10 British pence each in Astro
Instrument : Up to 30,000,000 non-collateralised cash-settled call warrants over ordinary shares of Astro, exercisable American style
Exercise Ratio : 2 Astro CW : 1 Astro share
Exercise Price : RM5.55, being 100.33% of the 1-day volume weighted average market price ("VWAMP") of Astro shares on 18 December 2006 of RM5.5319
Settlement : Cash settlement only
The Astro CW give the holder the right to receive from CIMB, upon valid exercise or on Expiry Date (as the case may be), the Cash Settlement Amount, which shall be calculated as set out below, less all incidental expenses.
Cash Settlement Amount = Number of call warrants x (Closing Level - Exercise
Price) x 1/Exercise Ratio
= Number of call warrants x (Closing Level - Exercise
Price) x 1/2
Where the Closing Level will be:
(i) if exercised before the Expiry Date, the Closing Level will be the closing market price of the Astro shares on the market day immediately before the exercise date. Any Exercise Form received by the Call Warrant Registrar after 9.00 a.m. on any market day shall be deemed to have been received on the next following market day, or on Expiry Date, whichever first occurs;
(ii) if the Astro shares are delisted or suspended, the Closing Level will be the closing market price of the Astro shares on the market day immediately before the delisting or suspension; or
(iii) if exercised on the Expiry Date, the Closing Level will be the 5-day VWAMP of the Astro shares before and including the market day before the Expiry Date. If the Cash Settlement Amount after deducting all incidental expenses is equal to or less than zero, we shall not be obliged to make any payment to the relevant warrantholder, and the Astro CW which have been exercised shall thereafter become void.
Issue price : RM0.325, being an amount equal to 11.75% of the 1-day VWAMP of Astro shares on 18 December 2006, divided by 2 (being the Exercise Ratio).
Exercise Period : Exercisable at any time for a period of 8 months from and including the issue date of the Astro CW.
Expiry Date : Date falling 8 months from and including the issue date of the Astro CW.
Merry Christmas and a happy new year to all forumers
Apr 25 2006, 11:47 AM
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