To all:
For you who may want to buy puts or calls on golden stocks- here's one for you.
Liquidity and volatility of gold call warrants increase their appeal
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Markets Reporter
THE mood in the warrants market remains cautious with a definite leaning toward gold call warrants at present.
Warrant traders look for liquidity in the underlying instrument over which a warrant is issued. Gold stocks are highly liquid and volatile at present.
As a result, warrants over gold stocks are attracting the lion's share of attention, said Graeme Coetzee, head of warrant sales at UBS Warburg Securities.
The most popular gold warrants at the moment are Gold Fields, Harmony, and AngloGold.
Warrants volumes have increased about 53% from this time last year, with volumes in May last year amounting to 1120248585. Volumes in May this year came in higher at 1718095450.
Coetzee recommends buying gold stock puts, which give the investor the right to sell the underlying stock, under current market conditions.
Most historic valuation multiplies were indicating fully priced levels for gold stocks. The majority of the gold stocks that expected improvements have already been enjoyed, he said. As a rule, avoid deep-out-of- the money products, as well as short dated instruments, he said.
However, Garreth Montano from Investec Equity Derivatives said trade in gold calls, which give the investor the right to buy the underlying stock, should continue to be heavy, because a higher gold price is possible.
He said gold warrants had been the order of the day for some time and specifically of late with action dying down in stocks like Sasol, where the market focus had been in the past.
He said for the moment it looked as if the US economy was still under some pressure, which should translate into dollar weakness going forward. This in turn could lead to further upside in the gold price and levels of around the 350/oz mark are believed to be in sight, he said.
Another sector looking particularly interesting was the platinum sector, and especially, Impala.
He did not think financials were ready for a surge and said they should be avoided, specifically on the warrant side of things where trade should be limited to a trending market as opposed to a sideways moving market.
Secondary trade on the warrant market continues to be supported by the private investor. The warrant investor is attracted to the market because of the leverage the products offer and the cheap exposure to blue chip counters.
However, there has been an increase in proprietary trade as well as the first sign of institutional business, which is certainly something that could add a new dimension to the industry with regard to volumes and demand for new style warrants, says Montano.
Socgen warrants spokeswoman Gizelde Brady said warrants were highly popular in SA, would continue to grow in popularity and might replace small cap stocks. She said investors who used to trade small caps tended to move over to trading warrants because the liquidity was better due to issuers being market makers.
Socgen had just issued 24 new put warrants, and one call warrant on African Rainbow Minerals Gold. Brady said Socgen issued the call because it thought it an exciting counter and this was the first call on this company.
She said the puts were issued because Socgen felt the market did not cater particularly well for the bearish investor and there was room for a few well placed puts.
Warrants are inherently a bull market instrument and are widely supported by the private investor, who tends to shy away from bear markets, even though warrants allow an investor to achieve attractive yields in rising (call warrants) and falling (put warrants) markets.
Warrants allows private investors to profit in declining markets, since investors cannot sell stocks short.
Warrants were exceptionally popular in Europe, Australia and Hong Kong. The US does not have a listed warrant market. In more developed markets, such as Europe, warrants are only one form of a number of listed retail products.
The types of products offered abroad are more varied than in SA, specifically in Australia, where a mature market is seeing a lot of business centred around taxrelief-styled warrants.
Traders recommend that investors buy warrants only if they have a definitive view on the underlying stock. Avoid warrants that are far out of the money and close to expiry.
Jun 21 2002 12:00:00:000AM Madeleine van Niekerk Business Day 1st Edition
Friday
21 June 2002
ashoka |
