Why I Trade Thai Derivative Warrants

A Thai derivative warrant gives its owner the right, but not the obligation, to buy or sell ordinary shares on, or before, a specific date in the future. There are two types: call and put. In simple terms a call warrant is a bet that the price of the underlying ordinary share will go up. A put warrant is a bet that the price of the underlying share will go down.

I was in our chat room the other day talking with a new member of the Thai Shares community. He asked me why I prefer to trade Thai warrants rather than ordinary company shares.

Here are the 5 reasons that I gave him:

1. Warrants are easy to trade

Warrants are listed on the main board of the Stock Exchange of Thailand (SET). Buying or selling them is therefore as easy as placing an order for ordinary shares. The brokerage fees are the same as well.

Because warrants are listed on the main board, I only need only keep an eye on one market, and I can set up my watch lists to display each ordinary share paired up with a corresponding call and put warrant:

Thai Shares BANPU Warrant Watchlist 210217

Although the term derivative warrant may sound a bit scary and complex, learning how to trade this type of security is not a difficult task. There are two key features that influence the market price of a warrant: its intrinsic value and its time value. I discuss these features in detail in my article: How to Value Thai Call and Put Warrants.

2. You can profit if the market is going up, down, or sideways

Because there are both call warrants and put warrants, you can profit if the market is going up or down. But one significant advantage that is often overlooked is that warrants can also be used to profit when the market is moving sideways.

Warrants are leveraged. That is, it is much cheaper to buy a warrant than it is to buy its underlying share. Because of this leverage, the smallest movement in the price of an underlying share can still result in a healthy percentage gain on one of its warrants. Thus, even in times of low market volatility, warrants still provide opportunities for an active trader.

3. Down side risk is limited

Thai derivative warrants are not subject to margin calls like futures or options. The maximum that you can lose on a warrant is limited to the amount of your initial purchase. In other words, the price of your warrant can go to zero and that’s it. You should, of course, be using a trailing stop to prevent that from occurring. You can read more about using trailing stops here: How to Use Trailing Stops in Thailand.

4. You can make significant profits

Because warrants are leveraged they create opportunity for significant intraday profits in the event of a rally, or correction, in the price of an underlying share. Here is a recent screenshot from my trading platform for GL08C1710A, a call warrant for the Thai company Group Lease (GL):

Thai Shares GL Put Warrant 100317

5. I can (mostly) ignore fundamental analysis

I am good at picking market patterns. I am also quite proficient at analyzing fundamental data, but the thing is, I don’t enjoy it much, and it burns up a lot of time.

When I trade derivative warrants I focus upon what the market is doing right now looking for setups where I can implement a short term trade. The fundamentals of an underlying company are of little importance to me because I am not investing for the long haul and, as any one who has traded knows, the price of a company can move up or down regardless of what it’s financials are saying. Sure, I have to keep an eye on the x-dividend calendar and other relevant key dates, but, because I can (mostly) ignore researching fundamental data, I find that I get a much better return on my time when trading warrants.

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If you want to learn more about trading Thai derivative warrants you should join the Thai Shares community and participate in our forums. You can join up right now by clicking here. It’s free.