I just took a quick look at the Vietnamese stock market today and noticed something quite interesting – there are about 110 warrant codes being traded on the exchange, but most traders still don’t fully understand how they work. Today, I want to share some insights I’ve learned from my experience trading warrants.

What is a stock warrant? Simply put, it is a financial product that allows you to buy or sell an underlying asset (usually a stock) at a predetermined price before the expiration date. The great thing about warrants is that they enable you to profit from price differences without actually holding the underlying stock.

In Vietnam, the traded warrants are covered warrants, issued by securities companies. These companies hold a certain amount of stocks as collateral. When you buy a warrant, you are essentially betting on the price direction of the underlying stock within a certain period.

What makes warrants attractive? Leverage effect. If you compare the price volatility of warrants to the underlying stock, the volatility can be 4-5 times higher. For example, when HDB stock increases by 7%, the CHDB2201 warrant might increase by 31.7%. This means you can achieve higher profits with a smaller capital investment.

Currently, popular warrant codes are often linked to major stocks like ACB, FPT, HPG, MBB, MSN, MWG, POW, SHB, STB, TCB. These warrants are issued by securities firms such as SSI, HCM, KIS. The issuance price is usually quite low (around 1,000-2,400 VND), making them accessible to investors with small capital.

However, it’s important to pay attention to some key information when trading warrants. First is the expiration period – warrants have a validity from 3 months to 24 months. The conversion ratio is also very important – it defines the relationship between the number of warrants and the underlying asset. If the ratio is 2:1, you need 2 warrants to correspond to 1 stock. The strike price is the fixed price at which you will pay if you exercise the right.

A major difference between warrants and other products is the settlement method. In Vietnam, when warrants expire, you do not receive the actual stock but instead receive cash payment if it’s in profit. The settlement price is calculated based on the average closing price of the 5 consecutive trading days before the expiration date.

Calculating profit or loss is not very complicated. Break-even point = (Purchase price of warrant x Conversion ratio) + Strike price. If the stock price exceeds the break-even point at expiration, you receive the difference. If it’s lower, you incur a loss or lose the entire capital if the price drops below the strike price.

My experience after many years of warrant trading is: only buy when you truly believe in an upward market trend. Choose warrants from the underlying stocks of good companies, analyze the price trend carefully during the warrant’s validity period. Prioritize warrants with a strike price lower than the current stock price and a low conversion ratio.

Another important aspect is risk management. Opt for warrants with longer expiration dates to minimize risks from sudden volatility. Develop your own rules for buying, selling, taking profits, and cutting losses. Allocate your capital wisely – perhaps 10-20% for warrants, 50% for underlying stocks, 10-20% for derivatives, and 10-20% for cash.

Pay attention to the last trading day and expiration date. If near expiration and the stock price is still below the strike price, consider cutting losses to avoid losing all your investment. I’ve been in this situation before and learned a valuable lesson.

You can trade warrants in two ways: buy directly from the issuing company or trade on the exchange with listed warrants. Transaction fees are similar to those for underlying stocks. The minimum trading volume is 10 warrants, with a price step of 10 VND.

Overall, 2024 and the coming years could be a good opportunity for those interested in warrants. The market is still new, with many codes to choose from, and low entry prices. But remember, like any leveraged product, warrants can generate high profits but also carry high risks. Knowledge, experience, and discipline are essential for effective trading.