Calculate put warrants premium

Above is the information I get from my online broker. As we can see that the premium for Axiata-ha is -2.71% (which is a discount of 2.71%). Besides, the exercise price is RM3.40, expiry date is 25/8/2010 and gearing is 10.35.

With a discount and the market is decreasing, axiata-ha looks like a good potential trade. The joy is varnished as soon as I try to double check the information especially the premium of axiata-ha.

The correct formula to calculate put warrants premium is as below.







The calculated axiata-ha premium is = [(0.075 x 5)+ 3.88 - 3.40 ] / 3.88 = 22%

The calculated axiata-ha preimum of 22% is very different from the premium I get from my online broker of -2.71%. It is really misleading.

I try to check the put warrant premium and information at Bursa Malaysia and CIMB Warrant website too. To my disappointment, Bursa Malaysia doesn't get the premium correct too. However, CIMB  Warrant does a good job by calculating the premium correctly.

That's why we must always double check the information we get.

Ok, good luck.

GOon

Dow Jones Industrial forming head and shoulders pattern, part 2

I wrote about "head and shoulders Pattern" on 21st and 23rd of June 2010. I was expecting this pattern to be formed. I was right. We can noticed clearly than it is actually formed in Dow Jones Industrial (DJI). For your information, the "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.

Basically, most of the investors/traders do their research based on the fundamental analysis and technical analysis. For technicians/chartists, it's gonna be downside bias for them. The head and shoulders pattern is definitely a real concern to them. For fundamentalist, things are not looking good either. US, Europe, Japan and China, all these economy power houses have been releasing lots of negative news.

As we can see from the chart above, there was a very short term rally from 8th to 18th June 2010. What makes me worry was the trading volume was not increasing as the rally was happening. I did not buy into the rally, in fact I was clearing my call warrants and started buying put warrants.

After 18th June 2010, when DJI was starting to decrease, the volume increased. The volume is increasing as DJI keeps moving down. If DJI fails to hold on to the support level of 9759, I really think we will see a major tanker in July 2010. This will not be an ordinary tanker! Some people might argue that we should buy whey they are trading near support and sell when they are trading near resistance. I am not objecting that, but this time round, I really think that DJI 9759 support is not going to hold on much longer. It is gonna to be broken.

Even though I trades in KLSE, sometimes I do my research based Dow Jones Industrial, S&P 500 and NASDAQ to determine the major trend of KLSE.

I am happy that I finally gains some new experiences in trading in KLSE. I start to buy put warrants. Before this, I never had the chance to do so as the uptrend was intact. The feeling is actually quite cute. Since I have bought put warrants, I am happy when the market drops while I used to be getting worry when the market drops.

For your information, most of the put warrants premiums are not correctly calculated by my online broker. I guess it is wise for us to double confirm the premiums before we trade on these put warrants.

Ok, good luck.

GOon

Read more on "Head and Shoulders Chart Pattern"
http://cathoon.blogspot.com/2010/06/head-and-shoulders-chart-pattern.html

"Dow Jones Industrial forming head and shoulders pattern"
http://cathoon.blogspot.com/2010/06/dow-jones-industrial-forming-head-and.html

Sell In May and Go Away?

I am a bit confused each time when i hear others talking about "sell in May and go away". I assume that they mean that the market will go down from May till October. Statistically, this is correct for most of the time that the market tends to be more bearish during this period. I think it has become a self-fulfilling prophecy.

There are a few Self-Fulfilling Prophecies such as:
• Sell in May and Go Away
• October Effect
• Santa Claus Rally
• January Barometer

If most of us know that the market tends to be more bearish during May-October period, why don't we trade Put Warrants/Put Options during this period? By doing this, we still could earn a handsome profit when the market goes down. So why should sell in May and go away? I guess most of us are still trapped in the traditional way of thinking that we could only make money if the market goes up.

Warrants and options are very good financial instruments when stock market major trend is clear. When the market is bullish, it is good to trade call warrants/options, and when the market is bearish, it is good to trade put warrants/options.

There are a few put warrants listed on KLSE. They are ridiculously expensive in term of their high premium.I don't think the market markers/issuers for these put warrants are sincere enough to develop our Malaysian warrant market. I guess this is the reason why many full-time traders that I know are not trading our at KLSE instead they choose to trade oversea stock markets.

Personally, I also preferred our oversea stock market put warrants/option, at least i don't have to pay 20%-100%++ of premium for a put warrant. Moreover, these put warrants (KLSE) are extremely low in liquidity.


GOon