Warrants & Structured Products Flashcards
At-the-money warrants have a delta of around ___.
It means that ____
0.5
1 cent increase the underlying price will lead to 0.5 cent change in the warrant value
Call wrrants with highe strike prices result in ____, but are not suitable if _____
High strike price
A small change in price is anticipated
Call Wrrant IV =
Put Warrant IV =
Call = Max {0, (S-X)/n}
Put = Max {0, (X-S)/n}
IV (Intrinsic Value) is zero for _____ (type of warrants)
OTM and ATM warrants
CP (Conversion Price) for Call Warrant
CP (Conversion Price) for Put Warrant
Call CP = X + nWP
Put CP = X - nWP
The warrant premium is mainly its ____
time value
Premium of warrant is ____
Difference between the price of warrant and its intrinsic value.
Premium of Call Warrants
Premium of Put Warrants
Call Warrants Premium = nWP + X - S
Put Warrants Premium = nWP + S - X
If expressed in percentage, premium is _____
the percentage by which the underlying share price should move by maturity so that the investor breaks even
Premium (%) of Call Warrants
Premium (%) of Put Warrants
Premium (%) of Call Warrants = [(nWP+X-S)/S] * 100
Premium (%) of Put Warrants = [(nWP+S-X)/S] * 100
In both put and call warrants, exercise expenses are payable by _____ to the _____
warrant holder to the warrant agent
Cash settlement of a call warrant:
Cash settlement of a put warrant:
Calll = (S-X)/n per warrant
Put = (X-S)/n per warrant
New Exercise Price of Structured Warrants =
New Exercise Price = Old Exercise Price x Adjustment Factor
Adjustment Factor = (P-SD-ND)/(P-ND), where
P = the last cum-date closing price of hte underlying
SD = Special dividend per share
ND = Normal dividend per share
Adjustment for Share Buy Backs / Cancellations of the underlying stocks of structured warrants:
New Exercise Price =
New Exercise Price = Old Exercise Price * Adj. Factor 1 * Adj. Factor 2
Adj. Factor 1 = Existing Shares /Number of shares on an ex-basis
Ad. Factor 2 = (P-CD) / P, where
P = the last cum-date closing price of the underlying
CD = Cash distribution per share held immediately prior to the Capital Reduction/Buyback
New Conversion Ratio = Old Conversion Ratio * Adjustment Factor 1 * Adjustment Factor 2
Adjustment for Share Splits of the underlying stocks of structured warrants:
New Exercise Price = Old Exercise Price * Adjustment Factor, where Adjustment Factor = Existing Shares / Number of shares on an ex-basis
New Conversion Ratio = Old Conversion Ratio * Adjustment Factor
For each currency translated warrants, the settlement amount =
For instance, a structured warrant on the Hang Seng Inde is traded in Singapore, the underlying currency HKD is different from the settlement currency SGD
MAX {0, Underlying Currency 1 * [(Refrence Level - Exercise Level)/n] x Exchange Rate (Settlement Currency / Underlying Currency)}
MAX {0, HKD 1 * [(Refrence Level - Exercise Level)/n] x Exchange Rate (SGD/HKD)}
The Conversion value or parity value of a convertible bond is _____
Conversion value =
its value if it’s converted immediately
Conversion value = market price of share * conversion ratio
What’s the min. value of convertible bond?
Greater of its conversion value or its value without the conversion option, i.e. the straight value
Market conversion premium per share for a convertible bond =
Market conversion price - share price
What’s Premium of Convertible Bond over straight value?
= (market price of convertible bond / straight value) - 1
For warrants, the downside risk of the warrant is ____
the value of warrant
For convertible bonds, the downside risk is _____
the difference between the convertible price and the staight bond value
The payback period, without factoring the time value of money, for a convertible bond is calculated as ____
Premium payback period = market conversion premium / income differential per share
Income differential per share = [coupon - (conversion ratio * dividend per share)] / conversion ratio
What’s the participation rate of a structured products?
The percentage increase in the structured product’s return for every 1% increase in the performance of the reference asset