Warrant

Warrant is a “Structured Share” of the mother share in a certain of period

The structure of Warrant consists of 2 kinds of price
i)  Fixed price
ii) Market Price

It is a bit hard to explain in defination; so let us just pick an example.

Example:

JCY issue a warrant to the market,

i)   Fixed price of warrant is RM 1.00
ii)  Let say the exchange ratio is 2 warrant : 1 mother share
iii) The Fair price of this warrant in the market is 25sen. (Market might value it a bit higher or lower)

If JCY go up to RM 1.60; the Warrant will be value at RM 0.30

BUT, if JCY went lower then RM 1.00, let say RM 0.90; this warrant will be worthless.

All warrant come with a due date.
If the warrant reach its due date; and the Mother share price is lower then Fixed Price, then this warrant will be expired worthless.

Opportunity and Treats

Because of the fixed price; warrant is issue in low price
Price movement of warrant will be similar to mother share

Percentage of price movement in warrant will be big compare with the mother share

Eg.

JCY up 10sen; the warrant also up 10sen
ROI of JCY = 10 / 150 = 6.7%
ROI of JCY warrant = 5 / 25 = 20%

Of course, if price goes up the earning % is high; if price goes down the losing % will be also high

As mention above; if the due date approach and the mother share is lower then the fixed price; this warrant will be Expired Worthless. Someone might ask how could this be.

Eg.

JCY market price is RM 0.90
If you want to execute your warrant; you will need to pay RM 1.00(with 2 warrant share) to exchange for 1 mother share INSTEAD of buying in the market for RM 0.90
Of course you will not execute in this trade. So it just expired worthless.