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ADVFN HomeHelpCovered WarrantsCovered Warrants by Alpesh PatelTime value
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?

Time value

The second component of warrant premium is time value. It is the difference between the premium and its intrinsic value.

Time Value = Premium - Intrinsic Value

From the above it follows that at expiry (when time value equals zero) an out-of-the money warrant is worthless and an in-the-money warrant is worth it’s intrinsic value. Note than since a warrqant cannot have negative intrinsic or time value the most a warrant holder can lose (and the most a writer can make) is the premium, no matter how much the underlying price changes.



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