The Selection Of Call Warrant
There are roughly 200 to 250 warrant counters available in Bursa Malaysia whilst call warrant roughly comprised of 50% out of it. Why call warrant instead of all warrant counters that trader can choose from either to trade or to invest for short to mid term gain? The answer is RISK!
Call warrant (denoted by ending alphabet such as CA, CB, C1, C2 etc.) mostly are derivatives deride from Bursa most reputatable and financially steady heavyweight blue chip underlying shares such as Maybank, Public Bank, Genting Family, Astro, Bjtoto, Airasia, Sime Darby, IOIcorp, Maxis and so on and issued by market maker/issuer/Investment Bank such as CIMB, Kenanga and OSK.
Company warrant/Right (denoted by ending alphabet such as WA, WB, LA, LB etc.) are derivatives issue by the listed company itself for the purpose of raising additional funds and so forth. This kind of warrant are more on the high risk cause it can be issued by any listed company in Bursa Malaysia, be it heavyweight like Sime Darby(Steady company rarely issue warrant by itself) or those secondliner like LCL Corporation Berhad or even PN17 counter like MEMS. Typical company warrant are Iris-PA, Mulpha-WA, Gpacket-WA and much more. This kind of company warrant is a time bomb for warrant holder as most company warrant are issue by those smaller size and financially less credible listed company and most probably manage by some unscrupulous group of directors/family members . We may not know when the company may default in payment or go bankrupt in near future like what happen to LCL. Therefore try to avoid company warrant except certain counter such as Bjcorp-LC.
There are bunch of call warrant in the market nevertheless, how to shortlist those that potentially more rewarding rather than risk? One should understand how warrant function, warrant price tend to go up when the underlying share price go up and vice versa and the correlation percentage can be vary greatly. Warrant premium tend to decrease gradually over time regardless mother go up or down. For mother that appreciate substantially over short period of time, the children tend to get close to zero premium level e.g. ammb-cc and genting-co (american style) and pbbank-cj(european style) and this category of warrant are the perfect proxy for the underlying shares and poise to show virtually 100% of correlation with respect to mother share price movement.
So shall i conclude that lowest premium is the best candidate for player to go in? the answer is quite subjective. Few factors are worth to consider to determine the risk/reward factor. 1. The lowest the premium the best (e.g. pbbank-cj) 2. The lowest the conversion ratio the best(e.g. Maybank-cj). 3. The lowest the bid spread the best(e.g. ammb-cg) 4. The lowest the warrant price the best(e.g. bjtoto-cd and astro-cc). 5. The highest volatility of the underlying share price the best(e.g. genting-co and hsi-c7). 6. The highest warrant buy/sell queue quantity(liquidity) the best(e.g. maybank-cl). 7. The longest the maturity/expiry date the best (e.g. brkb-c1). Please bear in mind that the most sought after criteria and deem to be most important factor; the maturity date of the warrant; actually is "not that important" if we target call warrant as short to mid term trading(e.g. few days to a week trading), the question enlighten the quest, who want to buy those call warrant that going to expire say in two weeks time but with 15% premium? The chances to get burn with virtually out of money upon expiry date is so tremendous.
There's no absolute perfect selection methods for player to choose which warrant counter they should go in. It all depends on their risk appetite, capital employed, trading style, trading size and their brokerage fees structure but they should stick to above 7 main critical factors so to enhance reward and minimize risk. Even zero premium children but with different exercise price days before expire might tend to have totally different outcome upon expiry, one might out of money while the other greatly in the money. For those that need specific advice, do feel free to contact me and i am glad to share with them how to trade smartly and profit from the call warrant trading handsomely and consistently.
The Trading of Call Warrant
The selection of call warrant is very subjective and just the first step toward identifying potential money making call warrant for the player to jump in market. Nevertheless, market condition change drastically over time whereas it's not surpirse player change and swap his/her buying position to selling position and otherwise even within seconds. When this happen, it's not the fundamental or technical chart that help, it's the player basic instinct and senses that comprise of all of his/her available knowledge and judgment at that particular moment that matter, it's all happen up to miliseconds and the outcome of profits or losses could be determined and reversed.
Player must always put risk at their first priority over profits and never hesitate to exit their position at all cost regardless profits or losses. Hence, the ourcome of going in and out of market should be quite frequent which elevate the transaction cost and therefore the first utmost important task that player should and must do is to locate the best brokerage that can offer better brokerage while providing the best platform and system for trader to trade. There are few way to reap profits from call warrant trading 1. Scalping like Bjtoto-cd or igb-ca 2. Momentum blend with range trading like genting-co and astro-cc.
In warrant trading, it's not advisable to average down the buying price but it's advisable to average up the buying price blend with intermittent profit taking and scalping technique. The result for average down could be disastrous and cost player his entire capital vanishes in days. But the average up buying strategy might also erase player gain or turn the profits to losses yet the senses of market/counter direction is vital. But such average up buying strategy can turn profits into jackpot shall everything work fine especially in obviously bullish market. Of course there could be compromise in between, just cut lost when market turn against us or buy and hold and let the profits run shall the mother showing steady price appreciation without significant pull back in place. Again, it all rest with how the player cope and take advantage of the changing market condition fast and decisively.
The market will not be forever up or forever down, greed and fear need to be balance wisely. There's no such thing player want absolute safety yet demand huge reward, as the saying goes the higher the risk the higher the return. Try to pay attention to the basic chart of support and resistant and moving average plus the general market sense of how market fetch will do as this represent the player psychological mindset whether they will exit or go in market, to buy or to sell.
Ever Changing Selection and Trading Strategy
Please bear in mind that in warrant trading there are consider 3 counter parties involved 1. you vs. banker (e.g. ammb-cc) 2. you vs. other players vs. banker (genting-co, affin-ca). Warrant trading is dffer from normal counter trading whereas player got adequate information exhibit from the mother share price and volume movement and the readily available buy and sell quantity place by the market maker in the warrant counter. This is player advantage over banker. The disadvantage is the bids spread, time decay and premium deterioration over time and without dividend payment. But all this can be sorted out "amicably" in the selection process.
Very important factor for all trader to consider is that, we can't forever stick to and loyal to certain warrant counter such as maybank-cj, ammb-cc, pbbank-cj, sime-cf, hsi-c7 and gen-cn. This is the group of warrant with the lowest premium in town but most likely trader will lost and trap if they go in at the wrong time. Market maker are very sensitive in market making this group of warrant whereas sometimes they even resort to putting wide spread to the warrant bid/ask price and put the warrant price gap down from time to time regardless underlying share price performance if happen they lost too much money in market making. It's for the player to readjust their selection and trading strategy once this happen.
In bull market, player are more likely able to conduct daytrade or even hour trade for low premium and big cap warrant like above, but in times market are dull, player need to go for those lowest price children with reasonable premium and tight bid spread such as bjtoto-cc, bjtoto-cd, airasia-cf, igb-ca, astro-cc and so on. This low price group of children we may need to hold on to it for days or even week and therefore the whole trading stragety is revised and modify.
Summary
For a good warrant trader, he she may not profit at all time and most probably just making marginally profit due to higher turnover cost from the first in first out trading practices. Nevertheless, all he she want is the sound scenario that they catch the right mother on the right time and at the right price where the mother have just started to show the right momentum of going upsurge for days to come. Once such good opportunity (happen few times monthly and depends one can spot and catch it) may even rewards the traders with profits range from 10% to even 50% of trader "paid up capital". Overall, a good warrant trader should generate roughly 5% to 40% monthly profits out of his/her capital pump in to trading account. E.g. for every Rm10000, one might expect to make RM500 to RM4000 a month.
