Know The Difference – Warrants & Call-Warrants

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Nov 24 2006
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With the current “presume” bull-market in Bursa (KLSE), it seems everything looks attractive. Retails no doubt will re-look at the usual cheaper exposure – warrants. Compare with old time where warrants were the buzz-word for retails-investors, now they are spoilt for more option such as call-warrants, basket-warrants etc. But before an investors/speculators/punters jump into the boat, it’s advisable to distinguish the “Warrants” and “Call-Warrants”.
Warrants give the holders the right, but not an obligation, to subscribe for new ordinary stock shares at a specified price during a specified period of time. The warrants are issued by the company. Warrants have a maturity date (up to 10 years) after which they expire worthless unless the holder had exercised to subscribe for the new shares before the maturity date. Warrants used to have expire date of 5 (five) years but after the 1997 Asia Economic Crisis, most of these out-of-money warrants were granted extension of a longer expiry-date.
Call Warrants also give a right, but not an obligation, to buy a fixed number of stock shares at a specified price within a limited period of time. But unlike warrants, call warrants are issued by third parties based on existing stock shares. Therefore, they do not increase the issued capital or dilute the earnings of the company as a warrant do. Call warrants have maturity dates of not more than two (2) years.

So, in a way both are similar to “Option” trading in western countries such as United States. But option trading is more complicated, flexible but yet interesting and can be very profitable as it involves other components such as Volatility, Strike Price, Different-Expiry-Date, Call & Puts (make money either the stock goes up or down), multiple strategies such as Spread and others.

Now back to warrants and call-warrants : example, Commerce International Merchant Bankers Bhd (CIMB) launched its call warrant issues for Astro All Asia Networks Plc and Scomi Group Bhd on May-2006.

The issue price for the Astro call warrant (ASTRO-CA : stock-code 5076CA) was set at 22.5 sen each, with an exercise price at RM4.65. The conversion ratio is two call warrants for one Astro share.

Scomi call warrant (SCOMI-CA : stock-code 7158CA) on the other hand was priced at 17.5 sen each and carries an exercise price of RM1.15. The exercise ratio is 1-for-1.

Both issues have a tenor of eight months.

So, before you commit your hard-earn money investing warrants, it’s advisable to check all the above information before you yell at your broker and say “BUY”, “BUY”, “BUY”.

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