APPLE-C1 Call Warrant (CW)

OSK Investment Bank really knows how to pick the stock especially when comes to list call warrants (CW) of American stocks. After listed Google Inc.’s (Nasdaq: GOOG) CW (GOOGLE-C1) recently, on 11th December, it listed Apple Inc.’s (Nasdaq: AAPL) CW as APPLE-C1 (stock-code 0528C1) on the Bursa Malaysia.



Apple-C1 has the following characteristics which you should know:

• Conversion / Exercise Price = USD171.50
• Conversion / Exercise Ratio = 1200
• Expiry Date = 3rd July 2008
• IPO Price = RM0.11

You should notice the variable or the unknown fluctuation from the above items namely the exercise price that is denominated in US dollars. The US dollars had weaken since the last interest rate cut and if Ben Bernanke continues to cut the interest rate in the foreseeable future, you can expect the Malaysia Ringgit to strengthen further.

The exchange rate for USD to Ringgit was 1 USD to RM3.3120 as of Dec 13. This means the following:

• Conversion / Exercise Price: USD171.50 x 3.3120 = RM568.01
• Apple-C1 trading price as of 13th Dec 2007 (midday closing) = RM 0.115
• Let’s exercise the CW: RM0.115 x 1200 = RM138
• Add it to the Exercise Price: RM568.01 + RM138 = RM706.01

Now, let’s see the last stock price of Apple Inc. traded at Nasdaq on Dec 12. The share closed at USD190.86 per share which will translate into RM632.13 ($190.86 x 3.312). So you’re paying a premium of 11.69 percent or RM73.88 for the time value until 3rd July 2008. Now, let’s assume the premium of 11.69 percent and currency exchange rate will stay the same until the expiry date, although it’s very unlikely. It’s for computation sake.

If Apple Inc. climbs to USD200.86 (USD10 gain) you’ll have the following:

• In Ringgit: USD200.86 x 3.312 = RM665.25
  
• The total exercise price and ratio= RM743.02 (11.69% premium)
• The un-exercise 1200 CWs: RM743.02 – RM568.01 = RM175.01
• Each CW: RM175.01 / 1200 = RM0.146 (round to RM0.145 since you can only trade at 0.005 spread)
  

So, when the Apple Inc. stock jumps US$10 a share, your gain in CW is RM0.03 (around 26% gain). The underlying mother share of Apple Inc. only gain at around 5.24% (From USD190.86 to USD200.86). Of course the above illustration is based on the assumption that the premium and currency exchange rate remains static at the above figures.

Surely, one could probably make more money trading Call or Put Options directly from the U.S. stock markets mainly due to the volatility and one-to-one relationship between the stock and the options, i.e. no huge conversion ratio and exchange rate risk.

Also worth mentioning here, U.S. call and put options are automatically priced using Black-Scholes-Merton model, whereas the price of local structured CW like Apple-C1 are based on demand and supply of the CW.

*Adapted from Stocktube with some minor updates.

More Books...

Finally, the exam is over. At the mean time, i wish to at least finish reading some of the books that have been long overdue. Some of them are:

1) The Black Swan by Nassim Nicholas Taleb
2) The Age of Turbulence by Alan Greenspan
3) Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne
4) The World Is Flat by Thomas L. Friedman
5) Anna Karenina by Leo Tolstoy

amongst others.

Brian Tracy - 21 Ways to Double Your Productivity

1. Make a decision today and get started -- To do something or stop doing something. Self-discipline is the ability to make yourself do what you should do when you should do it whether you feel like it or not.

2. Develop CLEAR goals and objectives -- You can get everything you want but you must pay the price in full and in advance. Write down your goals and set a deadline. Make a list of everything you can think of to achieve your goals. Organize the list into a plan and take action towards your plan. Do something every single day that move you in the direction of your goals.

3. Plan everyday in advance -- 6P(Prior proper planning prevent poor performance). Make a list. From master list to monthly list to daily list. Always work from your list.

4. Use the ABCDE method to set priority -- Never do a B item when there is A item left undone. D(Delegate to others) E(Eliminate).

5. Separate the urgent from the important -- Urgent and important, important but not urgent (like seeking knowledge), urgent but not important, not urgent not important (useless activity).

6. Use The Law of Force Efficiency -- What is the most valuable use of my time right now?

7. Apply the 80/20 Rule -- Identify the top 20% of your tasks.

8. Work at your energy peak -- Proper eating, proper exercise and proper rest.

9. Practice single-handling of key task.

10. Eat live frog -- First thing to do in the morning.

11. Organize your workplace -- Keep your desk clean. T.R.A.F. (Toss/Refer/Action/File).

12. Use travel time productively -- During car journey and flight.

13. Get better at your key task -- Determine the one skill that will help you the most in your life and your income.

14. Work in real time -- Bias for action. Need for speed.

15. Re-engineer your work -- Reduce 30% of the steps needed in your work initially. Use your creativity. Streamlining.

16. Reinvent yourself each year.

17. Practice zero-base thinking continuously -- What you won't do knowing what you now know you won't get into again if you have to do it over.

18. Set clear posteriority - Discontinue something that you are now doing that are no longer as valuable as they were when you first started on them.

19. Keep your life in balance -- Happy relationship with people.

20. Plan every project carefully.

21. Be intensely action-oriented -- Constant motion.