OSK and CIMB issued 4 call warrants on Maxis which started trading last Thursday on Bursa Malaysia. All 4 warrants are cash-settled European-style type. As the warrants are issued and traded directly in the exchange via market making, issuers held 100% of all outstanding warrants at the beginning of trade.

Based on the closing price last Thursday, Maxis-CA issued by OSK has the lowest premium. It was also the most active Maxis warrants on Bursa last Thursday. Nevertheless, this warrant also has the earliest expiry date and using premium alone may not be a good indicator of the warrant’s attractiveness.

For traders, Maxis-CB also issued by OSK may be the better bet as its valuation is the lowest based on implied volatility. However, the tick system on Bursa may not be favour trader as each tick is 0.5 sen and the exercise ratio is much higher than 1 to 1. For warrants issued at low price like Maxis warrants, each tick movement of 0.5 sen is about 3% in price difference and traders need 2 ticks to start making money to overcome bid-ask spread. With an effective gearing of 2 to 3, the mother share needs to move 2 to 3 % (6% representing 2 ticks divide by effective gearing of 2 to 3) for warrant traders to make money. A 2% movement of Maxis mother share at current price is about 11 sen and with the tick movement of mother share at 1 sen, traders need the Maxis to move up at least 11 ticks before money can be made.

Warrants valuations are typically high on the first few days of trading. Implied volatility may fall after a while as the share price stabilizes. Unless traders expect the underlying share to make a big move in the very short term, holding the warrants longer than necessary is not a good idea.

Alan Voon
Warrants Specialist
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Nov 28 2009

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