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WARRANT WATCH – Turbulent market puts spotlight on STI contracts

THE choppy market conditions and the recent correction in the Singapore bourse have drawn investors’ attention to warrants of the Straits Times Index (STI).

The STI has been plagued by soaring crude oil prices, a weaker US dollar and lingering fears about the American sub-prime problem.

These factors combined to lower the STI by 73.34 points as it ended at 3,599.67 last Friday.

‘Although the domestic economy is robust, investors are wary that the external factors may eventually affect the economy if they take a turn for the worse,’ said Mr Ooi Lid Seng, Societe Generale’s (SG’s) vice-president of structured products for Asia, excluding Japan.

He singled out two contracts offered by the French bank.

Those who are bullish about the index can consider an SG call warrant expiring on Jan 30 that pays out if the index tops 3,800 points.

That contract was one of the more actively traded warrants last Friday. It dipped nine cents to 41 cents, with 10.8 million units done.

In contrast, those with a negative view can consider an SG put warrant, also expiring on Jan 30, that pays investors if the index dips below 3,400.

That warrant surged 7.5 cents to end at 41.5 cents last Friday, with 1.2 million units exchanging hands.

The most active STI contract last Friday was an SG put warrant with a strike level of 3,700, which lapses on Dec 27.

That warrant saw a volume of 18.3 million units as it gained five cents to close at 34.5 cents.

Mr Ooi said the technical outlook of the STI is slightly negative.

He added: ‘It is now trading at around the psychological 3,600 mark, which is a major support level.

‘If it can stay above this level, the index may attempt to break above its 50-day moving average at 3,665.

However, should the STI weaken further, the next major support would be at 3,500.’

A call warrant lets an investor buy into a stock or index at a preset price over a period of three to nine months.

A put warrant allows an investor to sell the stock or index at a preset price over a fixed period of time.

 

Source: The Straits Times 12 Nov 07

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