FSM INVEST EXPO 2020
Asked on 15 Jan 2020
They are so thinly traded, not many companies issue warrants. Why? What is their purpose? Why not just do options?
I guess the difference is that warrants have a longer duration than options. With low liquidity and volatility in SG markets paired with the short time frame of options, I think it would be tougher to create any traction for it as well. Also, not taking into account fees for short term options trade!
But I honestly think those invested in SG markets, are much better to off to focus on the fundamentals of buying a strong business and holding it on for long term, rather than trade out trading instruments/deriavatives.
Becos SGX didnt start an Options exchange. Why not? Even our equity market volume are not huge, not to mention if equity options are introduced. Probably only several of the largest counter will have volume. There are also also considerations beyond volume.
Warrants are much easier. They are traded like a security and enjoy leverage on the price of the underlying (and yet do not require margin like an options trade). They are issued by a financial institution, terms of the warrants are set by the issuing company. Those warrants u trade on SGX are issued by Macquarie. Companies themselves do not issue warrants that are traded on the exchange.
So what is their purpose? Mainly just another betting tool for the avverage speculator. For the issuer, it is just another betting game they come up to make money.
Warrants allow investors to bet on the price movement of a company by giving a long dated option. Technically warrants are similar to options except they are of a longer duration. To me, they are better suited to fundamental investing who look at long term stories
While options will be an addition to the variety of financial instruments, their voltality may result in many retail investors losing fortunes due to their trading psych
I would think its the volatility of stocks in Singapore. If options were to be introduced, the time frame is rather short and it'd be hard to speculate the direction of share prices rather than warrants where the validity can be up to 15 years