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ADVFN HomeHelpCovered WarrantsCovered Warrants by Alpesh PatelTechnicalities
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?

Technicalities

This bit's strictly for those who absolutely positively need to know everything.

Covered warrants are listed on the London Stock Exchange and trade like shares. If you already trade shares you will feel at home. Prices are quoted in much the same way (order book and quote driven) and settlement is through CREST.

Issuers will be obligated to provide liquidity and there are minimum spread and size rules.


Your existing online broker will probably offer them.

Think global, trade local: on international stocks
Warrants are available on international stocks such as Nokia and denominated in sterling. All are traded on the London Stock Exchange through your same online broker. So you can go international without having to open multiple foreign accounts.

Not just stocks
Fancy trading in indices such as Nasdaq or the FTSE? Warrants are listed on these too. They are also available on sectors.

What's so different then?
Warrants have expiries to 5 years, compare that to spread bets where maturities are a few months. This means you can take very long term positions on a stock using the leverage provided by a covered warrant without having to lose the position out an open a new one as expiry time approaches infrequently.

With a warrant you can only lose premium no more. However, most investors will not want a position to get so out of hand that you lose your whole initial investment, but at least for a leveraged product you are not able to even accidentally lose more than you initially put down.

These new products are traded via the London Stock Exchange so regulated and available through your normal broker. Another interesting feature is the wide number of products on which they are available. It is not merely a handful of stocks but lots of underlying securities.

Of course the worry is will they be 'liquid'? Will there be sufficient interest to get narrow bid ask spreads? The answer is yes. The banks behind covered warrants are obliged to provide market quotes within tight spreads.



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