On the second day of the SMART Expo event, I was deciding whether to attend Masterclass: Structured Warrants Survival Kit by Simon Yung of BNP Paribas or Breaking the Millionaire Code by Thomas Mathew of IPP Financial Advisors.
As I was already familiar with warrants, the last thing I wanted to attend was another beginner class on warrants. From the writeup, it didn’t seemed like it:
- Will the strength of warrants rise to the economic challenges ahead?
- The DIY mini hedge fund long/short term strategy
- How does warrant issuer make money?
- How to identify non performing warrants?
What I was attracted to in Simon’s seminar was the DIY mini hedge fund long/short term strategy.
On the other hand, Thomas Mathew’s topic seemed pretty interesting and new to me.
- F.L.O.W – Financial Lifestyle Organised Well
- My Formula – Financial model
- 2 Millionaire Code – Revealed
After thinking about it, I decided to attend Simon Yung’s warrants masterclass.
Simon started by mentioning about the uncertainties facing the current markets.
- Decline in SIBOR
- US subprime
- Slowing economic growth
- Inflationary pressures
- Weak USD
- Record high oil prices
In a bear market, we could profit from put warrants or make use of it to hedge our position.
DIY Mini Hedge Fund Strategy
Depending on the view you take, there are three strategies you can try.
1) Long term positive view on a stock & Near term downside
Use a long term call warrant and a short term put warrant.
2) Outperform View
This strategy helps to reduce/remove market risk.
If you think that A will outperform B, buy A call, buy B put.
If you think that B will outperform A, buy B call, buy A call.
3) Believe stock price will trade outside a certain range
Buy call and put warrants of the same stock.
Non Performing Warrants
These are the kind of warrants we are told to avoid:
- Deep in the money or out of money
- Short term (less than 1 month)
- High “placeout” (turnover)
Did I learn something new from Simon? I probably did.
But I would have no way of knowing whether the other session by Thomas would be more applicable for me. Personally, I try to avoid warrants as I will have to get two bets right to make money – the direction and the time. This is something which I find difficult.