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ADVFN HomeHelpCovered WarrantsCovered Warrants by Alpesh PatelRelationship between the warrant price and the price of the underlying security
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?

Relationship between the warrant price and the price of the underlying security

The most important thing to remember is that the price of a call warrant tends to rise as the underlying security price rises and the price of a call tends to fall as the underlying security price falls. The price of a put tends to rise as the underlying security price falls and the price of a put tends to fall as the underlying security price rises.

So why buy a warrant and not the security? Because a warrant is leveraged. That means that for a given percentage change in the underlying price the option price can change by a greater percentage. You get a bigger bang for your buck.

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