How to trade structured warrant?
Stock Prince (股票王子）
Stock Prince's Insights
Author: Stock Prince (股票王子） | Latest post: Mon, 22 Feb 2021, 8:17 AM
Why am I here? Recently I have witnessed many novice traders rushing into the market to simply buy penny/speculative stocks at very high prices. Causing them to lose their hard earned money or worst their life savings. This breaks my heart and as a very experienced investment bank trader, I believe that it is my duty to teach the public the right way to day trade.
CW’s value is primarily derived from the value of underlying stock. So the first thing you have to do is to study the price movement of the underlying stock. A good time to buy CW is when you think the underlying is about to make a sharp gain within a short period. It is at this point of time where the gearing effect comes into full effect. So, study the charts, digest the news and do your research.
Compare similar warrants
There will be warrants of same underlying but with different maturity periods and different strike price. For example, choose the one with lowest premium and longest maturity period.
You can also compare the implied volatility(market expectation on the future price fluctuation of the underlying) of a warrant with warrant of similar effective gearing, exercise price and expiry before deciding which one is relatively expensive.
Your aim may be to choose a warrant with lowest implied volatility among warrants with similar terms and underlying.
In Malaysia, structured warrant issuers either act as market makers or appoint one market maker for each warrant issued.
A good market maker will ensure sufficient liquidity in the particular warrant by continuously providing competitive buy and sell quotes, making it easier for traders. By doing so, market makers also ensure price stability of the warrant price.
It is important to understand the nature of market makers because they have different strategy, always choose an issuer that offers good market making service.
Set take profit and stop loss target.
Set a take profit target- Watch movement of underlying stock. If underlying share keeps going up, let the profit run, sell it when underlying shows sign of weakness.
Set a stop loss level- If underlying starts going down to a certain level, cut loss IMMEDIATELY, It is better to cut loss quick and buy back at a better price instead of holding it hoping it to come back.
All information shared here are strictly for educational purpose only. There is no buy or sell recommendation for any counters mentioned in this channel. We hold no responsibility for your trades. You should make your informed decision by consulting your licensed remisier or investment advisor before making any investment decision.