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ADVFN HomeHelpCovered WarrantsCovered Warrants by Alpesh PatelOther strategies
Covered Warrants by Alpesh Patel
  So how am I going to use them?
  Pick the right risk/reward profile
  Intrinsic Value
  Time value
  Relationship between the warrant price and the price of the underlying security
  Who is it for?
  Technicalities
  Other strategies
  Tax management
  Freeing Cash
  Conclusion
  What are they?

Other strategies

Hedging a portfolio is another way to use warrants. For instance if you have a portfolio of shares and expect the market to decline in the months ahead but do not want to sell each stock thereby potentially crystallising tax liabilities and incurring broker commissions you could simply buy a put covered warrant.

As the market falls the value of the portfolio is also likely to decline. However, the value of the put covered warrant would rise to 'hedge' or offset losses in the portfolio.

But which warrant would cover the portfolio? Well, the easiest example would be where the portfolio exactly mimics the FTSE 100. In that case you would buy a FTSE 100 put warrant.

Chances are it won't be that straightforward. And you will have to do a rough and ready estimate to how correlated your portfolio is to the FTSE 100.

Of course you could always hedge individual share declines by buying puts on them alone.

figure 7





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