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Arbitrage Opportunities for Expiring Warrants

A number of expiring structured warrants listed on Bursa Malaysia are trading at a discount at the moment.  As some of these securities are listed in Hong Kong, there are many options for investors to sell short or implement strategies that would effectively generate a risk free return within the next month or so.


Amongst the expiring warrants that are trading at discounts on 31st May 2010 are CHMOBIL-CD, HKEX-CB and PETROCH-CA.


We use PETROCH-CA as an example on how we can achieve risk free profit over the next few weeks.


The price of PETROCH-CA on 31st May is RM0.065.  The call warrant has an exercise ratio of 8 and exercise price of HKD7.00.  The exchange rate of HKD/RM is RM0.4185.  PETROCH-CA will expire on 18th June 2010.  The underlying share Petro China closed at HKD8.53.


An investor buying into PETROCH-CA at RM0.065 is effectively paying HKD8.24 for one share of PetroChina.  This represents a discount of 3.5% of the closing price of HKD8.53.


To achieve arbitrage profit, an investor needs to sell PetroChina share short.  This can be achieved via a number of options. 


BJCORP-CB : Beware of Further Issuance When Implied Volatility is High

Berjaya Corporation share price rose last few days despite the global equity sell-off on.  This has also led to heavy trading of its structured warrants listed on Bursa Malaysia.  Due to the presence of issuers as market makers, investors need to pay special attention on how the game is being played.  This is especially when the implied volatility of one warrant is exceptionally high and there can be  risks of further issuance of the same warrants by issuers as illustrated below.


New Warrant: HWGB-WB heavily traded

Two new company warrants debuted on 13th April 2010 in Bursa Malaysia.  One of them is HWGB-WB, which was actively traded.  The warrant came free for those who subscribed Ho Wah Genting  Berhad (HWGB) rights issue of share at RM0.20.  Subscribers would have lost 5 sen from the mother share based on the closing price of 15 sen.  However, since the warrant was traded at 6.5 sen to 7 sen, those who subscribed for the rights came out ahead marginally.

MEDIA-WB: Low Premium Punt on Government Controlled Media

Media stocks listed on Bursa Malaysia have been enjoying a strong run led by Media Chinese International (MEDIAC) whose share price is up almost 60% YTD.  Another media company,  Media Prima (MEDIA) is also up about 35% although Berjaya Media (BJMEDIA) is down YTD but that stock is thinly traded.



Expiring Company Warrants Top % Gainers

Following the recent spectacular run of AFFIN-WC, many company warrants also put up strong gains today led by LBALUM-WA which gained 133% or 2 sen from 1.5 sen to 3.5 sen on heavy volume. The following table displays the top 10 percentage gainers amongst company warrants listed on Bursa Malaysia on Friday 9 April 2010.



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