Why is the price movement of a warrant not directly proportional to the movements in the price or level of its underlying assets?

(a) The price of a warrant is not only affected by the price of the underlying asset but a range of other factors. This means that movements in the price of a warrant may not be proportionate, or may even be opposite, to the price movement of the underlying asset. For example: for a call warrant, if the price of the underlying asset increases, but the implied volatility of the price of the underlying asset decreases, the price of the warrant may decrease as the drop in its implied volatility may offset an increase in the price of the underlying asset;

(b) if a warrant is deep “out-of-the-money” (e.g. when its theoretical value is substantially less than HK$0.01), the price of the warrant may be insensitive to any increase (in respect of a call warrant) or decrease (in respect of a put warrant) in the price of the underlying asset;

(c) if the outstanding volume of a series of warrants in the market is high, the supply and demand of the warrant may have a greater impact on the warrant price than the price of the underlying asset;

(d) in respect of a call warrant, a decrease in time value may offset any increase in the price of the underlying asset, especially when the warrant is close to its expiry where the time value usually decreases more rapidly; and

(e) in respect of a put warrant, a decrease in time value may offset any decrease in the price of the underlying asset, especially when the warrant is close to its expiry where the time value usually decreases more rapidly.