A few Q's on Instalment Warrants

[drayzen]

Hello everyone :bekloppt:

I've just been considering trading Instalment Warrants and can't make sense of a few things.
I've read through the classes on the ASX site but still don't quite understand some of the available warrants, hope I can get some help.

1) I've seen some with an instalment price that is greater than the current share price.
To quote a smarter man than I... Why is it so?
Then there's others with very high strike prices, or both, why would someone invest in to either of those?
All of the examples given in the ASX tutorials express the Instalment + Final payments to be nearly equal to the share price.
Fine in theory, but in practice it doesn't seem to match up with warrants on offer.
e.g.
ASX Code: RIOJMG
Strike Price: $83.99
Expiry Date: 30/06/2010
Ex Style: A
Issuer: MACQUARIE BANK LTD.
Conversion Ratio: 1W = 1 Share
Issue Size: 10M
Last Price: $79.100
First Traded: 07/02/2008

On the ASX site this is given a valuation of $52.670, so it appears to be on offer just a bit higher...
RIO's last close was $43.930.

2) Is there anywhere that lists all of the stocks that have warrants available?

3) When selling the warrant are you guaranteed a sale if you meet the current ask price?
I'm assuming that the issuer is required to buy the warrant to meet their conditions of 'making a market', correct?

4) Is there anywhere that shows some practical examples of how some of the less obvious factors effect warrant pricing, e.g. 'time value'?

Thanks in advance :bier:

 

[sails]

Hi Drazen,

I don't think there are too many posters trading warrants on ASF - or they keep very quiet. I have traded the occasional instalment warrant, however, I don't know all the answers to your questions.

I do know it is important to read the warrant PDS so you know exactly what you are getting into. They are often around 100 pages long and not an easy read. Warrants do not appear to be standardized in the same way as ETOs, so the issuers can pretty much make their own rules, hence the PDS needs to be understood, IMO!

I have heard it is better to stick with the Macquarie Instalments as they have had a better reputation - but after reading the BrisConnections thread here at ASF, it has left me somewhat unsure.

Some (not sure if all) Macquarie instalments seem to have a put option included which can also be exercised if you don't want to pay the next instalment and would potentially be useful if you can't sell the warrant.

I have periodically placed expiring instalment warrants on my watch list and, even those out of the money (eg strike price above share price), all seem to have a minimum bid of $0.001 (one tenth of a cent). Whether that can be relied on, I'm not sure.

As a guess, I would imagine out of the money warrants are used by those who believe the market may still trade to that strike. It could be a cheap way to leverage, but the full amount invested can just as easily be lost. Then there would be those that bought them when the market was trading higher - and may want to get out to cut their losses.

I use the WebIress platform and it has warrant info on there. I would think it would be possible to get this info from the ASX site - but not sure.

Not sure if this has been much help - but it's the little I know about I/Warrants!