Guide for Beginners

Investors love investing a small amount for a big return. The entitlement ratio helps to reduce the warrant price...

  • Entitlement ratio is the number of warrants needed for controlling one share. Because different stocks have different prices, entitlement ratios are needed to eliminate the face value of a small warrant, so as to achieve the effect of investing a small amount for a big return.

  • In general, the entitlement ratios of stock warrants are 1:1, 5:1, 10:1, 50:1, 100:1 and 500:1. If the issuer’s corporate actions necessitate an adjustment of the entitlement ratio of the stock warrants, other numbers may be adopted.

    The entitlement ratio for indices is a multiple of 10.

  • If two stock warrants have the same underlying assets, expiry dates and implied volatility but different entitlement ratios, the effective gearing will not be affected.

    What the entitlement ratio affects is the face value of each warrant. Assuming that other terms are the same, the value of a warrant with an entitlement ratio of 100:1 will be lower than that of a warrant with an entitlement ratio of 50:1. However, because the HKEX requires that the price of newly issued warrants be no less than $0.25, warrant issuers may use a lower entitlement ratio to issue warrants with short durations but high effective gearing, in order to increase the options available to investors.

    For example:

    Other factors being equal, when the entitlement ratio of warrant A is changed to
    , the warrant value is $0.4.
Consolidate your memory immediately!
Assuming that the entitlement ratio of warrant B is 10:1, and the warrant price is $0.2,
when the entitlement ratio of warrant B is changed to 50:1 (with other terms remaining unchanged), the warrant value will be
It is often said that warrants have leverage. What is leverage?
Please refer to
“Terms: Understanding Warrant Terms One by One (IV) - Leverage”
Understanding Warrant Terms One by One
(1) Exercise Price (2) Expiry Date (4) Leverage (5) Implied Volatility
Extended Readings：
CS Interact
Correct!
When the entitlement ratio is changed from 10:1 to 50:1, the warrant value will be 1/5 of the previous value, i.e. 0.2 × 10 ÷ 50 = $0.04
Wrong!
When the entitlement ratio is changed from 10:1 to 50:1, the warrant value will be 1/5 of the previous value, i.e. 0.2 × 10 ÷ 50 = $0.04