Q&A for Pchem - WA

Q: What is Pchem - WA?

A: Pchem - WA is an Europe call warrent at RM 5; the term is 5:1. Expiration date is at Aug 2011. and cash settle.

Q: What is that means?

A: Europe Call Warrent meaning, you can only Exchange the warrent to the mother share on the expiration
    date.

    Term 5:1 meaning, 5 warrent is to exchange to 1 mother share

    Expiration date meaning, the Warrent will expire. or de- listing at Aug 2011.

    Cash Settle, at the expiration date, you will not get any share, it is all cash settle.

    So the fair value to calculate for this warrent to be equal to mother share is:

    5 x W + RM5 = Mother Share (Pchem)

Q: Why people buying this warrent?

A: Warrent is a way to invest, whereby you can use small money to earn big money. Example, according to
     fair value, the warrent is currently at 0.20; and the mother share at RM 5. Let say mother share goes up
    0.10; the return is just 2%. The warrent should go up by 0.02; and the return is 10%.

S&P vs Future (/ES)

/ES is future for S&P 500.

Normally ES is lowe then SPX. This is because of a common theory, that you are buying something that only will deliver to you in future and is not now..

ES come with an expiration date. When the new ES contract started, the price different is bigger. When time goes, the expiration date become nearer, the price will move nearer to SPX.

Fair Value is a number that "think" what should ES be. For Example, Let say SPX is at 1230, the time to reach the expiration is 3 months. After some calculation, ES Fair Value should stay at 1225.

Normally ES won't move too much from SPX and Fair Value.

Happy investing..!!!