| Naga Wisdom 5 |
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How to Calculate Cash Settlement Amount
Settlement Calculations Formulas |
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Call Warrant |
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Cash Settlement Amount
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(Closing price - Exercise price) |
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| Exercise Ratio |
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Foreign Underlying Call Warrants |
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Cash Settlement Amount
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(Closing price - Exercise price) |
x Currency Exchange rate
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| Exercise Ratio |
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Index Call Warrants |
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Cash Settlement Amount
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(Closing level - Strike level) |
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| Exercise Ratio |
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Foreign Index Call Warrants |
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Cash Settlement Amount
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(Closing level - Strike level) |
x Currency Exchange rate
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| Exercise Ratio |
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| Settlement Price |
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| 1. |
Exercise the warrants before expiry
(Applicable to American Style Warrants)
The closing price will be based on the closing market price of the underlying share or closing level of the underlying index on the exercise date (exercise form submitted before 12.30 p.m.) or the next market day after the exercise date (exercise form submitted on or after 12.30 p.m.). |
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| 2. |
Automatic exercise upon expiry
(Applicable to American and European Style Warrants)
On the expiry date, ITM warrants are automatically exercised and the settlement price will be based on:
Equity Warrants
- 5 day VWAP (Volume-Weighted Average Price) of the underlying share for 5 market days prior to the expiry date; or
- Average closing price of underlying share for 5 market days prior to the expiry date; or
- Closing price of the underlying share before the expiry date, as specified by the relevant term sheet.
Index Warrants
- Closing level of the underlying index before the exercise date or expiry date; or
- Closing level of the corresponding index futures contract before the expiry date; or
- Average closing levels of the underlying index for 5 market days prior to the exercise date or expiry date, as specified by the relevant term sheet.
Note: You do not need to send any exercise form to registrar for automatic exercise warrants.
Click the examples below to see the types of settlements available. Please note that the calculations in the examples exclude transaction costs.
Disclaimer: The information contained herein this website (including calculations and examples given) are for illustrative purposes only and is not meant to be relied upon as advise and/or solicitation for services. You are advised to read and understand the base prospectus, supplementary base prospectus and relevant term sheet and applicable terms and conditions for more information.
Example of Settlement for a Call Warrant
Example of Settlement for a Foreign Underlying Call Warrant
Example of Settlement for an Index Call Warrant
Example of Settlement for a Foreign Index Call Warrant |
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Settlement
** The calculations in the examples exclude transaction costs.
Call Warrant
There are three possible ways you could choose to exit your call warrants:
(** Example 1) |
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Underlying
a) Call warrant price when share price is RM2.50
b) Closing price on exercise date
c) 5 day VWAP on expiry
Exercise price
Exercise ratio
Call warrant price
Remaining time to expiry
Volatility |
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ABC
RM0.105
RM2.50
RM2.30
RM2.11
5 warrants : 1 share
RM0.075
6 months
45% |
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| a. |
Sell the call warrant in the exchange
If an investor sells the call warrant in the exchange at RM0.105, he could receive a gain of RM0.03 or 40% above the initial warrant price of RM0.075. |
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| b. |
Exercise the call warrant |
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Cash Settlement Amount
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(RM2.50 - RM2.11) |
| 5 |
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RM0.078 |
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Most of the local underlying warrants are cash-settled American exercise style warrant (i.e. can be exercised anytime up to the expiry date). Cash settlement of RM0.078 is more than the initial warrant price of RM0.075. Hence, an investor could receive a gain of RM0.003, or 4%.
An investor would not want to exercise an OTM warrant (share price <--> exercise price) because it is cheaper to directly buy ABC's share (say, RM2.00) than to exercise the warrant and pay a higher exercise price (say, RM2.11). |
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| c. |
At expiration |
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Cash Settlement Amount
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(RM2.30 - RM2.11) |
| 5 |
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RM0.038 |
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Cash Settlement of RM0.038 is RM0.037 or 49% lesser than the initial warrant price. At expiration, if the 5-days VWAP on ABC's share prior to the expiry date is RM2.11 or less, the warrant will expire with no value. |
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Foreign Underlying Call Warrant
There are three possible ways you could choose to exit your foreign underlying call warrants:
(** Example 2) |
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Underlying
a) Call warrant price when share price is HKD70
b) Closing price on exercise date
c) 5 day VWAP on expiry
Exercise price
Exercise ratio
Call warrant price
Remaining time to expiry
Volatility
Currency exchange rate |
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XYZ
RM0.088 (HKD0.195)
HKD70.00
HKD60.00
HKD65.00
100 warrants : 1 share
RM0.07 (HKD0.16)
12 months
45%
HKD/MYR 0.45 |
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| a. |
Sell the foreign underlying call warrant in the exchange
If an investor sells XYZ call warrant in the exchange at RM0.088, he could receive a gain of RM0.018 or 26%. |
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| b. |
Exercise the foreign underlying call warrant |
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Cash Settlement Amount
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(HKD70 - HKD65) |
x 0.45
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| 100 |
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RM0.023 |
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Most of the foreign underlying warrants issued in the local market are cash-settled European exercise style warrant (i.e. can only be exercised on expiry date). Since foreign underlying warrants are denominated in foreign currency, an investor would be exposed to foreign exchange rate risk.
Cash settlement of RM0.023 is less than the initial warrant price of RM0.07, thus there is a loss of RM0.047, or 67% (RM0.07 to RM0.023). |
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| c. |
At expiration |
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Cash Settlement Amount
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(HKD60 - HKD65) |
x 0.45
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| 100 |
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(RM0.023) |
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RM0 |
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Only positive cash settlement will be paid out to warrant holder. Cash settlement for the call warrant based on XYZ is zero as the warrant is OTM. Therefore, the call warrant expires with no value. |
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Index Call Warrant
There are three possible ways you could choose to exit your index call warrants:
(** Example 3) |
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Underlying
a) Call warrant price when index is 850
b) Closing level on exercise date
c) Closing level a day before expiry date
Index currency amount
Strike level
Exercise ratio
Call warrant price
Remaining time to expiry
Volatility |
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FBM KLCI
RM0.60
850
830
RM1 per index point
800
200 warrants : 1 share
RM0.45
6 months
20% |
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| a. |
Sell the index call warrant in the exchange
In the above, FBM KLCI is at 850 points. An investor could make a gain of RM0.15 (RM0.45 to RM0.60) or 33% by selling the call warrant in the exchange. |
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| b. |
Exercise the index call warrant |
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Cash Settlement Amount
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(850 - 800) |
| 200 |
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RM0.25 |
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In most cases, index call warrant is a cash-settled European exercise style warrant (i.e. can only be exercised on expiry date). If an investor chooses to exercise the call warrant, he could incur a loss of RM0.20 (RM0.45 to RM0.25) or 44%. |
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| c. |
At expiration |
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Cash Settlement Amount
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(830 - 800) |
| 200 |
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RM0.15 |
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ITM call warrant will be automatically exercised at expiration. Cash settlement amount is RM0.15, which is a loss of RM0.30 or 67%, after taking into account the initial warrant price of RM0.45. |
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Foreign Index Call Warrant
There are three possible ways you could choose to exit your foreign index call warrants:
(** Example 4) |
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Underlying
a) Call warrant price when index is 850
b) Closing level on exercise date
c) Closing level a day before expiry date
Index currency amount
Strike level
Exercise ratio
Call warrant price
Remaining time to expiry
Volatility
Currency exchange rate |
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S&P 500
RM0.406 (USD0.116)
850
830
USD1 per index point
800
200 warrants : 1 share
RM0.35 (USD0.10)
12 months
45%
USD/MYR 3.5 |
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| a. |
Sell the foreign index call warrant in the exchange
The above shows S&P 500 is at 850 points, and if an investor sells the call warrant in the exchange, he could make a gain of RM0.056 (RM0.35 to RM0.406) or 16%. |
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| b. |
Exercise the foreign index call warrant |
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Cash Settlement Amount
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(850 - 800) |
x 3.5
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| 2000 |
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RM0.088 |
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If an investor chooses to exercise the call warrant, he could lose RM0.262 or 75%, after deducting the initial buying price of RM0.35. |
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| c. |
At expiration |
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Cash Settlement Amount
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(830 - 800) |
x 3.5
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| 2000 |
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RM0.053 |
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At expiration, the cash settlement of the call warrant is RM0.297 (RM0.35 to RM0.053) or 85% less than the initial buying price. |
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NAGA GOLDEN ADVICE
The gains from trading warrants in the exchange are more certain than exercising or holding the warrants until expiration.
Buying and holding the warrants until expiry is not recommended as you will not only lose the time value remaining in the warrant price, at the same time you will be exposed to the uncertainty in the underlying asset price at expiration. An OTM warrant at expiry is worthless.
A warrant based on foreign underlying has foreign exchange rate risk. Therefore, movement in the foreign exchange rate against Ringgit Malaysia will have an impact on the warrant's price. In short, a warrant's price is higher when the Ringgit Malaysia depreciates and vice versa. |
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Strategies