OREANDA-NEWS. Total traded value of Structured Warrants in January 2016 rose 40% month-on-month to S$315 million from S$225 million in December 2015. Coinciding with regional declines in January, of the five Structured Warrants with the highest traded value over the month, three were Index Put Warrants. Again, the 40 structured warrants with the highest traded value in January accounted for the majority of the 139 structured warrants with turnover activity in the month.

Biggest 40 by Traded Value included 15 Structured Warrants on Singapore Stocks

Among the 40 Structured Warrants with the highest traded value in January were 15 Structured Warrants based on Singapore stocks. These included 11 Call Warrants and four Put Warrants.  The 11 Call Warrants were based on Keppel Corp, DBS Group Holdings (DBS), United Overseas Bank (UOB), Oversea Chinese Bank Corp (OCBC), Wilmar International and CapitaLand. This group of 11 structured warrants included multiple Call Warrants on Keppel Corp, DBS and UOB. The 4 Put warrants were based on DBS, UOB, Keppel Corp and Singapore Telecommunications (Singtel).

The 15 Structured Warrants on Singapore stocks included three Call Warrants and one Put Warrant on Keppel Corp. These four Structured Warrants also had the longest tenure of the 15, with expiry dates at 1 November 2016 for a S$5.00 Put Warrant and S$6.00 for a Call Warrant, then 5 December 2016 for a S$5.20 Call warrant and 12 December 2016 for a S$6.80 Call Warrant. Of the 15 Structured Warrants the soonest to expire is a DBS Put Warrant with a S$15.50 strike price, on 15 February 2016, followed by a Singtel Put Warrant with a S$3.60 strike price and a 4 May 2016 expiry.

The seven Singapore stocks associated with the aforementioned 15 Structured Warrants are all constituents of the Straits Times Index (STI). Together the seven stocks made up more than a third of last year’s stock market turnover.

The 40 Structured Warrants with the highest traded value in January are tabled below.

Counter Name Stock Code Call/Put Expiry Date Strike level Jan 2016 Traded Value (S$)
HSI 20000 MB ECW160226 BPGW C 26-Feb-16 20,000 42,912,024
HSI 20400 MB EPW160128 BMUW P 28-Jan-16 20,400 26,391,971
HSI 18400 MB EPW160330 BPEW P 30-Mar-16 18,400 22,787,937
FTSECHINAA50 11500 MBECW160428 BMVW C 28-Apr-16 11,500 22,705,569
HSI 21200 MB EPW160128 BLPW P 28-Jan-16 21,200 16,631,439
HSI 22000 MB ECW160226 BMXW C 26-Feb-16 22,000 15,517,896
HSI 17600 MB EPW160330 BPXW P 30-Mar-16 17,600 13,487,194
HSI 21000 MB EPW160330 BLQW P 30-Mar-16 21,000 13,287,003
HSI 19800 MB ECW160330 BPYW C 30-Mar-16 19,800 12,778,091
HSI 20600 MB ECW160330 BPAW C 30-Mar-16 20,600 11,015,216
KEPCORP MB ECW161101 BPHW C 1-Nov-16 6 9,624,748
DBS MB ECW160711 BPJW C 11-Jul-16 14.8 8,756,134
HSI 19600 MB EPW160226 BPDW P 26-Feb-16 19,600 8,128,670
DBS MB ECW160705 BNMW C 5-Jul-16 16 7,902,938
UOB MB ECW160705 BNKW C 5-Jul-16 18.9 7,204,139
HSI 21000 MB ECW160226 BPBW C 26-Feb-16 21,000 6,774,394
HSI 21600 MB ECW160128 BMPW C 28-Jan-16 21,600 6,746,275
OCBC BK MB ECW161004 BNPW C 4-Oct-16 8.2 4,030,683
KEPCORP MB ECW161212 BNSW C 12-Dec-16 6.8 3,758,819
HSI 21600 MB EPW160226 BMZW P 26-Feb-16 21,600 3,710,158
UOB MB ECW160704 BMMW C 4-Jul-16 20.3 3,566,221
HSI 22400 MB ECW160128 BMBW C 28-Jan-16 22,400 3,526,650
STI 2650 MB EPW160429 BOIW P 29-Apr-16 2,650 2,589,296
HSI 21400 UB ECW160226 BHGW C 26-Feb-16 21,400 2,122,598
FTSECHINAA50 10000 MBECW160629 BPKW C 29-Jun-16 10,000 1,894,227
HSI 22800 MB ECW160226 BMYW C 26-Feb-16 22,800 1,869,523
WILMAR MB ECW161003 BDZW C 3-Oct-16 3.2 1,506,378
FTSECHINAA50 8500 MBEPW160226 BGMW P 26-Feb-16 8,500 1,494,799
KEPCORP MB ECW161205 BPUW C 5-Dec-16 5.2 1,441,897
STI 2750 MB ECW160630 BOFW C 30-Jun-16 2,750 1,361,409
STI 2850 MB ECW160429 BOEW C 29-Apr-16 2,850 1,335,338
CAPITALAND MB ECW160901 BDSW C 1-Sep-16 3.6 1,250,536
NIKKEI225 15500 MB EPW160311 BIBW P 11-Mar-16 15,500 1,183,863
DBS MB EPW160215 BGWW P 15-Feb-16 15.5 1,179,490
UOB MB EPW160601 BKIW P 1-Jun-16 19.5 1,154,555
DBS MB ECW160704 BMDW C 4-Jul-16 17.2 1,048,859
KEPCORP MB EPW161101 BPIW P 1-Nov-16 5 980,579
HSI 22000 MB EPW160128 BMCW P 28-Jan-16 22,000 923,063
SINGTEL MB EPW160504 BILW P 4-May-16 3.6 810,075
HSI 22800 MB ECW160428 BOAW C 28-Apr-16 22,800 802,016

Source: SGX (data as at 31 January 2016)

Unlike warrants on individual stocks, index warrants give you exposure to a sector or market, as their values are linked to the performances of certain benchmark indices. This eliminates the need for trading in a market portfolio of individual stocks.

Investors should note that warrants have a limited lifespan. The time to maturity of warrants listed on SGX-ST ranges from 1 month to 3 years. Assuming all other things constant, the longer you hold on to the warrants, the greater the decrease in the theoretical value of the war­rants. This effect is known as time value decay. The time value decay of a warrant increases exponentially as it approaches the maturity date. For warrants with a very short term to maturity, potential gains from a favourable price movement of the underlying may be offset by aggressive time decay. Warrants with a longer term to maturity tend to have smaller time decay, and offer investors a longer investment horizon to realize potential investment gains. Investors who have a long-term perspective on the underlying asset may choose warrants with a longer time to maturity.

For structured warrants listed on SGX-ST, warrant issuers will automatically exercise the warrants and pay the warrant-holder the settlement amount (if any) in cash, which is usually the difference between the average spot level at expiry and the strike level (if the warrants expired in-the-money). Call warrants will have value at expiry if the spot level of the underlying asset at expiry is higher than the strike level of the warrant. Conversely for a put warrant to have any value at expiry, the spot level of the underlying asset at expiry has to be lower than the strike level.

Specified Investment Products

Structured warrants are an example of Specified Investment Products (SIPs). The MAS has introduced measures for intermediaries to safeguard the interests of individual investors investing in SIPs, which are products with features that might be more complex in nature.