GAMUDA-WE (5398WE) - GAMUDA-WE, Reply to Mr. Koon Yew Yin


GAMUDA-WE (5398WE) - GAMUDA-WE, Reply to Mr. Koon Yew Yin


I have to write in English as I think Mr. Koon does not read Chinese.
With reference to his post this morning, I would like to thank him for his effort to highlight GAMUDA-WE. Whether GAMUDA-WE is undervalue or overvalue, that is another matter, but at least he shared his opinion.

The best method to value any warrant is still using the option calculator.
1) Dividend Yield = 0.12/4.86=2.47%.
2) Interest Rate = 4.00%, Most people use Risk Free Ineterest Rate, so we better follow.
3) Volatility = 12%, Use the historical data for the immediate last 90 days, and annualised it. 
4) Expiry Date = 31st Dec 2020 instead of the actual expiry is 6th Mar 2021, because normally the warrant will be traded without premium during tha last few months before expiry.

Now, look at the result.
1) The option fair value is only 1.04, that means the market price of 1.35 is too expensive.
2) The bottom part of the calculator, input the market price 1.35 and we get the imply volatility is 28%, meaning that the market price of 1.35 is fair only if the future volatility of GAMUDA is 28%.

Now, my argument against his opinion on premium.
1) In most cases, the premium will reduce when the mother share going up, the reason is the gearing reduce accordingly. The premium will also slowly reduce along the time closer toward the expiry, until a few months before expiry, the warrants will be traded in discount as people dont like the troublesome of converting it.
2) The premium will increase when the mother share drop drastically, as the gearing increase.


However, as Mr. Koon is very influential in stock market, and also because he is rich, bought GAMUDA-WE in big quantity, market players might follow him and went in to buy too, that might explain why the market price moved from 1.11 to 1.35 recently.


GAMUDA-WE (5398WE) - GAMUDA-WE, Reply to Mr. Koon Yew Yin
http://klse.i3investor.com/blogs/gambler/104153.jsp

GAMUDA-WE (5398WE) - GAMUDA-WE, Reply to Mr. Koon Yew Yin GAMUDA-WE (5398WE) - GAMUDA-WE, Reply to Mr. Koon Yew Yin Reviewed by admin on 9/11/2016 Rating: 5
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