| WARRANT CALCULATOR |
| INPUT DATA | |||
|---|---|---|---|
| Share Price: | [data] | Exercise Price: | [data] |
| Warrant Price: | [data] | Maturity: | [data] |
| PRINCIPAL CALCULATIONS | |||||
|---|---|---|---|---|---|
| Time Value: | [data] | Premium(%): | [data] | CFP(%): | [data] |
| Intrinsic Value: | [data] | Gearing: | [data] | PPI(%): | [data] |
| OTHER CALCULATIONS | |||||
| Premium(2)(%): | [data] | Break-Even Point: | [data] | Leverage: | [data] |
| Parity Ratio: | [data] | Break-Even Rate(%): | [data] | Giguerre: | [data] |
| OBSERVATIONS |
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| SHARE PRICE GROWTH MATRIX |
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There are two major rules for the format of all three of the above parameters:The reason for the above is that virtually all the warrant calculaions are relative calculations. They are comparing the share with the warrant. So, for this to be valid, like must be compared with like and hence, the units must be the same.
- The share, warrant and exercise prices must all be in the same units. This means in the same currency and the same denomination. Hence, enter all prices as, for example, dollars OR cents, not a mixture of the two (e.g. three dollars forty cents and 60 cents could be entered as: 3.40 and 0.60; or 340 and 60; but not 3.40 and 60).
- The inputs are all on a per share basis. This might mean adjusting the warrant price for the conversion ratio. For example, if the warrant can be converted into 2 shares, then the warrant price must be halved before inputting to the calculator.
The maturity must be input as "number of years to expiry". This figure does not have to be of too great accuracy, the calculations shown are not terribly sensitive to small changes in this input. (In fact, it is an interesting exercise to run the calculations a few times, each time varying the maturity a small amount, to see how it does affect the results).
See the examples provided for further tips on dealing with non-standard warrant terms.
The intrinsic value (IV) is the difference between the share price and the exercise price. In other words, it is the profit per share realised if the the warrant is exercised and the resulting shares sold immediately. If the share price is less than the exercise price then the IV is zero.Time Value is the difference between the warrant price and the intrinsic value. It can be described as the speculative premium that the warrant carries resulting from expectations of equity price increases during the life of the warrant.
The percentage share price increase required to equal the combined price of warrant and exercise. Thereby enabling the warrant buyer to exercise the warrants, sell the resulting shares and exactly recoup the original investment in the warrants.
The ratio of the share price to the warrant price. A crude measure for the extra zip in performance expected from the warrant over the shares. Sometimes called leverage in the US.
The Capital Fulcrum Point (CFP) is the compound annual growth rate of the share price that will yield equal returns for an investment in the shares or the associated warrant.
The percentage price increase (PPI) of the share required to double the price of the warrant, assuming the premium of the warrant - after doubling - is zero.
The warrant price expressed as a percentage of the share price. This is similar to the method of quotation of some options.
The ratio of the share price to the exercise price.
The break-even point is the level to which the share price must rise to recoup the investment in the warrant. Simply the sum of the warrant price and exercise price.The break-even rate is the annual stock price appreciation required for the warrant investor to recoup the investment in the warrant. Alternatively, it is an annualised premium measure.
An estimate of the rise of the warrant price if the share price doubles - assuming that the premium on the warrant goes to zero. This is an attempt to improve upon the gearing indicator, and is sometimes referred to as the implied gearing.
A crude, although sometimes surprisingly accurate, theoretical value calculation for warrants. Published by Guynemer Giguerre in 1958.
On the basis of the calculations, the warrant is assessed on its potential performance should the share price start to rise. A warrant is deemed an interesting speculative buy if the performance of the warrant price should be much better than that of the share. A warrant that is not interesting as a speculative buy, will still, in most cases, out-perform the equity but is technically unattractive, as it carries a large premium or low gearing.Note: It is rarely a good idea to buy a warrant on the sole grounds that it is technically attractive.
This assumes that investors are already holding the shares, and that they are interested in gearing up the investment. This observation indicates whether the warrant is suitable for using to "gear-up". Obviously, anything identified above as an interesting speculative buy will be suitable, but the requirements are relaxed here to include other warrants.Note: To effect the gearing switch, all the shares - or part of a share holding - is sold and warrants bought to replace them.
| SHARE PRICE GROWTH MATRIX (CFP=x) | |||||
|---|---|---|---|---|---|
| Col 1 | Col 2 | Col 3 | Col 4 | Col 5 | Col 6 |
| Share Price Annual Growth(%) | Warrant Price Annual Growth(%) | Share Price at maturity | Warrant Price at matuity | Share Price Total App.(%) | Warrant Price Total App.(%) |
The aim of this chart is to compare the relative performance of the share and warrant, for a given rise in the share over the life of the warrant.
Ten different share prices increases are analysed (displayed in COL 1). The share growth is expressed as a compound annual increase. The growth figure increment is controlled from the input form (the starting value is always 1.0%).