Covered warrant (CW) is a high-risk financial instrument. You need to comprehend and weigh up risk factors before starting covered warrant investment. The covered warrant has the following risks:

- Leverage: CW is a financial investment instrument enabling you to increase your profit margin but it also makes you suffer greater loss if the underlying stock evolves against your wish.

Example: With 10 million VND, believing that ABC stock will rise, you can buy:

• 1,000 ABC shares (price: 10,000 per share), or
• 5,000 call CWs (Underlying security: ABC stock, price: 2,000 VND per CW, conversion ratio: 1:1, exercise price (strike price): 10,000 VND)

However, if ABC does not rise as you expected but it goes down to 8,000 VND, you face the following loss scenarios:

• You buy ABC stock: (8,000 VND – 10,000 VND) * 1,000 shares = -2,000,000, you lose 20%
• All the cost for buying 5,000 call CWs: 10 million VND, you lose 100%

- Definite life: Unlike underlying securities, warrants have a definite life. Therefore, on the expiry date, you cannot hold covered warrants any longer and you will get a profit or lose all your warrant cost.

- Time: Some factors that make the value of covered warrant can lose their value by time, resulting in the decline of covered warrant value. For that reason, you should not see CW as a long-term asset.

Example: Volatility is one of the factors that create the value of warrants. The longer the maturity period, the higher the probability of fluctuation of the underlying asset price is, leading to the higher price of warrants. Conversely, the shorter the maturity, the lower the probability of fluctuation of the underlying asset price, resulting in the lower price of warrants.

- Market demand and supply: Like any other commodities, CW price is exposed to supply/demand factors.

- Volatility of underlying securities also directly impacts the CW price. When underlying securities grow, CW prices rise as a result. Conversely, when the underlying price slips, the CW price will dip.

- Issuer: CW is a contract between the issuer and the owner under which the issuer shall settle payment or transfer underlying securities when the owner requests a rights exercise. If the issuer is insolvent or goes bankrupt during the time you hold CWs, you are at risk.