Guide for Beginners

Implied volatility is the volatility derived from the expected volatility of the underlying assets...
Implied volatility is affected by the volatility of the underlying......

  • Implied volatility is the forecast of the market on the future volatility of the underlying assets.

    In general, when the underlying assets have high volatility, the implied volatility of the relevant warrant will also be high; when the underlying assets have low volatility, the implied volatility of the relevant warrant will be low.

  • When the market expects that the underlying assets will become volatile, or the demand for the derivatives of the underlying assets increases, the implied volatility of the relevant warrant will also increase, and vice versa.

    Because the warrant issuer will use options to hedge against its warrants, when the implied volatility of the options changes, the warrant issuer will reflect market conditions on the warrants.

  • When the implied volatility of a warrant increases, the warrant price will be positively affected, whether it is call warrant or put warrant; when the implied volatility decreases, the warrant price will be negatively affected.

    Call warrants Put warrants
    Market prediction Bullish Bearish
    When the implied volatility increases Theoretical price rises Theoretical price rises
    When the implied volatility decreases Theoretical price drops Theoretical price drops

    In certain situations, when the price of the underlying assets increases but the implied volatility of the warrant decreases, the theoretical increase in the call warrant price brought about by the increase in the price of the underlying assets will be partially offset by the theoretical decrease caused by the decrease in the implied volatility. As a result, the price of the warrant does not increase at the same rate.

Consolidate your memory immediately!
The price of the underlying assets of HSBC, the “big elephant”, rarely undergoes huge changes,
so the implied volatility of the relevant warrant is generally
How would the warrant price be affected by the increase/decrease in the price of the underlying assets?
Please refer to
"Movement: Factors that Affect the Warrant Price (I)".
Understanding Warrant Terms One by One
(1) Exercise Price (2) Expiry Date (3) Entitlement Ratio (4) Leverage
Extended Readings：
CS Interact
Correct!
For stocks that undergo few changes, because the expected amplitude of fluctuations is small, the implied volatility is generally low.
Wrong!
For stocks that undergo few changes, because the expected amplitude of fluctuations is small, the implied volatility is generally low.