Warrants: It all depends on your expactations
Using warrants, you can potentially benefit to an above-average degree from the movement in the price of an underlying asset.
Three reasons for choosing warrants
- Compared to a direct investment, you have to commit far less capital in order to speculate on the movement in the price of the underlying asset.
- With put warrants you can hedge your portfolio against falls in the price of the underlying asset.
- Börse Stuttgart is the market leader in warrants, meaning you can choose from a broad selection of products.
Winner and loser
How warrants work
Like all securitized derivatives, warrants are based on an underlying asset, be it an equity, and index or a commodity, for example. At the same time, they offer leverage. Thanks to this they respond to an above-average degree if the value of the underlying asset rises or falls. Depending on how you read the market, you can opt for call warrants and bank on prices rising or go for put warrants and count on prices falling.
So how do warrants function? As an investor you acquire the right to buy a specific underlying asset at a predefined underlying price and point in time. In return, you pay the seller a premium. The issuers tend to exclude physical delivery to you of the underlying asset and instead offer a fixed cash equivalent, also known as a cash settlement.
How the warrant’s price is made up
The most important things you need to know:
- The price of a warrant consists of a fair value and an intrinsic value.
- The fair value is influenced by an array of factors, for example volatility, remaining period to maturity, financing costs, dividends and interest rates.
- A warrant also possesses an intrinsic value if the current price of the underlying asset is above the strike price in the event of a call.
Warrants are not only suitable as speculative instruments for investors willing to take a risk. Indeed, you can also use put warrants defensively, for example to hedge your equities portfolio. A put rises if equity prices fall, and in the ideal scenario thus offsets portfolio losses
Flexibly fungible on Börse Stuttgart
Since warrants constitute the single largest group of derivatives, there is a sufficient range of securities with the risk/return profile you seek. You can buy or sell them on any trading day on Börse Stuttgart from 8 a.m. until 10 p.m. In other words, you can also respond to events in the US and Asian markets.