Delta = Change in warrant price / Change in underlying share price.
Meaning how many % the warrant price change vs the changes of the mother price. You need a higher delta so that when the mother price moves, the warrants will moves in a higher %
= Gearing X Delta Value
% change of price of warrant vs the change of 1% in the mother price. You need a higher EG to have a meaningful fluctuations of warrant price.
It is a probability/estimation of future prices, rather. The higher IV, the probability of warrants futures price moves in tandem with mother price will be correlated. Higher IV, the better.
2nd Choose higher Delta, EG and IV compare to peers
3rd Do not choose illiquid shares as the Issuer will do arbitrage trading
4th Do not trade if you are no good. Do paper trade and buy mother share instead.
Mother / Underlying Price = 1.41
Warrant Price = 0.22
Exercise Ratio = 1 to 1
Exercise Price = 2.30
Breakeven price = 2.52
Moneyness = OTM 38.7%
Option Style = American
Expiry Date = 18 Sept 2018
Buy 1 warrant at RM 0.22 (you have the right to convert become mother share from the date issued until expiry date – that is American Style. For European style can only be exercised after expired in 2018)
Buy 1 Warrant at 0.22 and Add Exercise Price 2.30 = 2.52 (total cost of owning the mother price that worth 1.41 now (it is called dumb)
Exercise Price 2.30- 38.7% = 1.4099 / 1.41
Means you are buying at the price of 38.7% higher than the market price (it is also dumb)
1. Check and test the similar wa for bench mark to find the most value for money
eg. CA CB CC CD