Premium

Premium is more commonly used in the covered certificate or warrant market. The meaning of premium refers to how much more it costs to exercise a covered certificate or warrant immediately compared to purchasing the underlying stock in the stock market. Typically, the premium is expressed as a percentage, such as 5%.

To put it simply, by measuring the premium, investors can know whether the covered warrant or warrant is cheap. Basically, the higher the premium, the more expensive the covered note or warrant is; conversely, the lower the premium, the cheaper and more attractive the covered note or warrant will be.

Taking the warrant as an example, if the premium is higher than 0%, it means that the current price of the underlying stock is lower than the exercise price; the higher the premium, the more out-of-the-money the warrant is and is lower than the exercise price. The greater the amplitude. On the contrary, if the premium is negative and a negative premium occurs, it means that the current price of the underlying stock is higher than the exercise price, and the warrant has been converted into the money.

With low premium, the risk of holding a position is low. Because the stock price is not too far from the exercise price, the chance of the warrant being exercised is also high. However, there are also a few investors who like to buy high-premium warrants because of their low cost; if the market situation continues to rise and becomes a unilateral market situation, investors can successfully "use small to gain big" and earn huge profits.

As for the calculation of premium, please see the example below.

Subscription round premium (%) =

{[Exercise price + ((round price/exchange rate) × Hong Kong dollar to nominal currency exchange rate) - current subscription price of the underlying shares] / Subscription round price Current stock price} ) × Hong Kong dollar to nominal currency exchange rate) - exercise price] / put current price} For covered warrants/warrants, if they are US stocks or Japanese stocks, the current price of the covered call warrant or put warrant needs to be converted into the designated currency (i.e. Hong Kong dollars) first, and the conversion value is calculated based on the market price. For example, for U.S. stock covered warrants or warrants, the price needs to be divided by 7.75 when calculating (because 1 U.S. dollar is worth 7.75 Hong Kong dollars).

Calculation example:

Cheung Kong call round (1757) Dow put round (1794)

The round price is 1.35 yuan, and the Cheung Kong realized price is 67.75 yuan. The exchange rate is 0.1, the exercise price is 56.29 yuan, and the nominal currency is Hong Kong dollars (that is, there is no need to calculate the exchange rate separately)

(1757) Premium =

[56.29 + (1.35 / 0.1) - 67.75] / 67.75 × 100%

= 3.01%

The round price is 0.156 yuan, the current price of the Dow is 10696 points, the exchange rate is 0.000022, the exercise price is 11000 points, and the nominal currency is US dollars (equal to 1 US dollar to 7.75 Hong Kong dollars)

(1794) premium =

{ [ 10696 + (0.156 / 0.000022) × (1 / 7.75) - 11000] } / 10696 × 100%

= 5.6%

Note: If you find the calculation complicated, it is recommended to pay attention to the data published in the investment pages of each newspaper.

Subscription warrant premium (%) =

{(Subscription warrant price × number of exchange units × nominal currency exchange rate) + exercise price – current price of the underlying stock} / Current price of underlying stock × 100%

Put premium (%) =

{(Put price × number of exchange shares × designated currency exchange rate ) + current price of the underlying stock - exercise price} / current price of the underlying stock × 100%

Example: The current price of the Hang Seng Index call warrant is 0.03 yuan, the exercise price is 10,000 points, and the Hang Seng Index is currently 10,000 points, the number of exchange shares is 10,000, and the currency exchange rate is HKD 1 (because the subscription object is the Hang Seng Index).

Premium (%) = {(0.03 × 10000 × 1) + 10000-10000} / 10000 × 100% = 3%

Example: Dow Jones Index The put warrant is currently 0.02 yuan, the exercise price is 9,000 points, the Dow Jones Index is now 9,300 points, the number of exchanges is 7,000, and the currency exchange rate is 1 Hong Kong dollar to 0.129 U.S. dollars (1 U.S. dollar to 7.75 Hong Kong dollars).

Premium (%) = {(0.02×7000×0.129) + 9300-9000} / 9300 × 100% = 3.42%, reference: Hong Kong Institute of Investors,