Covered Warrant

1. BASIC KNOWLEDGE OF COVERED WARRANT (CW)

• Is a type of securities with collaterals ensured by issuers, allowing investors the rights to buy or to sell underlying assets at a specific price on a specific date in the future, or to settle the difference between strike price and reference price of the underlying assets on the exercised date.
• Underlying assets can be stocks, indexes or ETF set by the State Securities Commission of Vietnam (SSC) and the authorized Stock exchange.
• Covered warrants are listed in the Stock exchange with trading tickers in accordance with regulations from the exchange. Covered warrants are traded similarly to that of stock trading.
• In the world, there are 02 (two) styles of covered warrant, European style (exercised only on the maturity date) and American style (can be exercised any time before or on the maturity date)

2. WHAT TYPE OF COVERED WARRANT IS BEING TRADED IN THE VIETNAMESE MARKET?

• Call - Covered Warrants are being listed & traded on the HSX.
• Underlying assets are stocks within the VN30 index regulated by the exchange & the only style allowed at the moment is European style.

Covered Warrant basic information

 
Moneyness of a Covered Warrant
Call-CW includes:

1. In the money

2. At the Money

3. Out of the Money

CW’s Equation:

Investors receives cash when his/her moneyness is “in the money”. In the situation of “at the money” or “out of the money”, no settlement will be paid out.

Factors affecting the price of a Covered Warrant

1. Stock price

2. Exercise price

3. Time to Expiration

4. Volatility

5. IR

Example:

 
Advantages of CW

• High profitability rate

• Maximum loss equals to premium price that was paid– this limits loss

• Trading easily

• Low initial capital

• Liquidity is guaranteed by market makers

• High leverage effect