Why I don’t trade Apple-C1 shares?





Dec 11 2007
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OSK Investment Bank really knows how to pick the stock especially when comes to list call warrants (CW) of American stocks. After listed Google Inc.’s (Nasdaq: GOOG, stock) call warrant (GOOGLE-C1) recently, today it’s listing Apple Inc.’s (Nasdaq: AAPL, stock) Call Warrant as APPLE-C1 (stock-code 0528C1) on the Malaysian Kuala Lumpur Stock Exchange.

Coincidently both Google Inc. and Apple Inc. are FinanceTwitter’s favorite technology stocks which had made good money and hopefully it’ll stay that way. While I prefer to trade the stocks’ option instead of the Call Warrants (CW) issued by local investment banks, you can still get the exposure by trading the CWs although there’re certain reasons why I’m avoiding the CWs at this moment.
Apple Call WarrantApple-C1 has the following characteristics which you should know:

  • Conversion / Exercise Price = US$171.50
  • Conversion / Exercise Ratio = 1200
  • Expiry Date = 3rd July 2008
  • IPO Price = RM0.11

You should notice the variable or the unknown fluctuation from the above items namely the exercise price that is denominated in US dollars. The US dollars had weaken since the last interest rate cut and if Ben Bernanke continues to cut the interest rate on Tuesday, you can expect the Malaysia Ringgit to strengthen further.

The exchange rate for USD to Ringgit was 1 USD to RM3.3185 as of Dec 10. This means the following:

  • Conversion / Exercise Price: US$171.50 x 3.3185 = RM 569.12
  • Apple-C1 trading stock price as of 11th Dec 2007 = RM 0.125
  • Let’s exercise the CW: RM0.125 x 1200 = RM150
  • Add it to the Exercise Price: RM569.12 + RM150 = RM719.12

Now, let’s see the last stock price of Apple Inc. traded in Nasdaq after Dec 10’s closing. The share closed at US$194.21 per share which will translate into RM 644.49 ($194.21 x 3.3185). So you’re paying a premium of 11.58 percent or RM 74.63 for the time value until 3rd July 2008. Let’s assume the premium of 11.58 percent and currency exchange rate will stays until the expiry date, although it’s very unlikely. It’s for computation sake.

If Apple Inc. climbs to US$204.21 ($10 bucks) you’ll have the following:

  • In Ringgit: $204.21 x 3.3185 = RM 677.67
  • The total exercise price and ratio= RM756.14 (11.58% premium)
  • The un-exercise 1200 CWs: RM756.14 – RM569.12 = RM187.02
  • Each CW: RM187.02 / 1200 = RM0.156

So, can you see why it’s so damn complicated and not attractive to trade the U.S. stocks based on such a huge conversion ratio in the local stock market? The volatility is not there. And when the Apple Inc. stock jumps US$10 a share, your gain in CW is only RM0.031. Of course the above illustration is based on the assumption that the premium and currency exchange rate remains static at the above figures.

Apple-C1 1200 dilutionAlso Apple Inc. is currently trading at 12-months high. Although I’m optimistic that Apple has more room for growth, I could probably make more money trading Call or Put Option directly from the U.S. stock markets mainly due to the volatility and one to one relationship between the stock and the option. The Apple-C1 Call Warrant is simply too “diluted”. Unless the Apple-C1 traded at a “discount” while the Apple Inc. is on new rally, I’ll just keep monitoring the Call Warrant – the same reason why I’m not into Google-C1 stock. It’s like tasting Starbucks Corp.’s (Nasdaq: SBUX, stock) Latte with 1,200 times of dilution.

However I can’t discount the possibility of speculation movement to the Apple-C1 stocks. Furthermore with such a “penny stock’s value” how hard could it be to push it up or down at the convenience of syndicates? Trade at your own risk.

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Comments

Why not just open an account with a US broker? E-trade, ScottTrade, and many others will open an account with a $500 deposit.

hello jcr …

yes, i’m aware of the multiple options with brokers to trade US markets … i’m currently trading with one of the broker houses …

this article is for malaysian investors looking at the apple-c1 which is the call warrants issued by local investment banks (brokers) …

thanx for your kind comment …

cheers …

I’m a Malaysian investor and wanted to trade in US markets, and openned an account with optionXpress, but I have difficulty on wire money from Malaysia to my US account. I tried Maybank2U and PBeBank but their TT form don’t have the fields to enter mandatory information required by optionXpress for wire. Any idea?

hello ebear,

kindly refer to my article “How to TT, Wire or Fund your US Trading Account?” at

http://www.financetwitter.com/2007/12/how-to-tt-wire-or-fund-your-us-trading.html

cheers …

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