Warrant Arbitrage and Practical Strategies

Author: Liang Weidong
Publisher:
Publish Date: 2006-07-01
Features: Warrants: Risks Multiply, Can Investors Participate?
Warrants: Opportunity for Quick Wealth, Heaven for Short-Term Masters?
Warrants: The Wealth-Making Machine for the Brave in the New Era of the Stock Market!
Top domestic warrants expert Liang Weidong teaches you how to invest in warrants step by step—You can also become a warrants master!
On August 22, 2005, my colleagues and I arrived at the company early. We were all waiting for the opening of Baosteel Warrant. Before that, Baosteel JTB1 Warrant had become the focus of all attention. It was the first warrant in 10 years. Everyone believed it would be hyped, and most also thought it would be pushed to a "high" price of 0.8 or even 0.9 yuan. At 9:25, the computer screen finally displayed the opening price of Baosteel JTB1 Warrant: 1.263 yuan, with a limit-up. I stared intently at the screen, as if hearing the market's exclamation. This price was 83.58% higher than the SSE's announced reference price of 0.688 yuan! It was 40% higher than most expectations. A limit-up opening—few would have anticipated it. Reality exceeded everyone's expectations. For a moment, the limit-up was broken. Buy or sell? Some couldn't sit still. I was also nervous, but suddenly had an idea: I should buy immediately! However, massive buying pressure pushed the price back to the limit-up, which was then firmly locked. A brief hesitation cost us a major opportunity. In the following two days, Baosteel Warrant reached a high of 2.088 yuan. Yet, I wasn’t discouraged. Instead, I was a bit excited. Though slightly slow, my thinking was correct. I knew warrants could bring huge profits, but not through such foolish gambling. I let go of this chance and waited patiently, knowing that as long as the market exists, opportunities would continue to emerge endlessly.
In many eyes, large sums of money change hands in an instant, with losses or profits decided in a flash. Warrants transform into angelic or demonic figures, stimulating the nerves. If the opportunity for huge profits from warrants isn’t achieved through such foolish gambling, how is it realized? I received many inquiries from friends: What are warrants? How do they make money? After collecting many materials, I found that most content revolves around the basic principles of warrants. Correct principles and the correct market don’t always align, at least in the market before me, it was still frenzied speculation. Since there was no good answer, I decided to write one myself. At the beginning of this book, I will still start with basic concepts and principles. This is the first step in building a correct understanding of warrants, covering Chapters 1 to 4. On this foundation, I will delve into the key focus of this book—the cases and operational techniques and concepts discussed in Chapters 5 and beyond. Perhaps these things cannot be immediately applied to the current market, but speculators should have a long-term vision: the current trading state of warrants cannot be sustained long-term. With the development of the warrants market, irrational trading prices will eventually be brought into a logical fluctuation space. Therefore, learning from the experience of foreign markets will surely provide help for our future investment or speculation.
Chapter 6 analyzes arbitrage opportunities and applicable investment strategies in the domestic market, combining practical situations. A medium-to-short-term perspective is adopted. Chapter 7 discusses the T+0 trading rules. Chapter 8 is another key focus, covering speculative psychology. Perhaps stable psychological qualities come from a thorough understanding of the speculative market. Yet, human psychology is so elusive—even one may not fully understand themselves. I’ve seen many seasoned market veterans lose control in transactions, turning avoidable losses into unavoidable ones. The discipline of the mind is a painful process. However, psychological research has empirically shown that successful traders mostly possess the correct trading mindset, a necessary hurdle to success. I will share some methods for psychological training.
Chapter 9 may be the most interesting part for readers. How to read the market, what constitutes proper technical analysis, and the correct way to think about problems. Much of this content comes from practice. The desire for wealth and freedom encouraged me to slowly accumulate this experience through countless failures. I know some traders who have developed similar methods, but few share them with others. In fact, if you work hard—say, 365 days of non-stop effort, coupled with endless blows and setbacks—you will eventually master these skills too. Now that you’re reading these words, you’ve taken a big step toward your freedom.
Chapter 10 discusses the trading rules of the warrants market. Trading rules are the foundation of trading strategies and cannot be ignored. If you don’t even know the rules of the game, rushing in blindly is inevitable. The outcome is predictable. The completion of this book is thanks to the encouragement and help of Mr. Zhang Haibing, Deputy Editor-in-Chief of Beijing’s Information Early News. From the initial concept to paragraph design, material collection, and final editing, Mr. Zhang Haibing provided selfless assistance, for which I am deeply grateful. During the writing process, Dr. Zhu Honghui of INSEAD China also provided me with a wealth of valuable case materials. Additionally, Mr. Ran Lan, Senior Researcher at Jinyuan Securities, offered great encouragement and support. I am grateful for all of them.
Finally, I’d like to quote a story that has been cited many times, because every time I read it, I gain new insights. A disciple asked the Zen master how to obtain truth through words. The master pointed to the sky and said, "Look. A bright moon." The finger is the word, but what the finger points to is the truth. Perhaps different people will read different moons in my book. That’s fine. In the sky of investment, there are originally not just one moon shining for you.