Warrant order question

If I want to buy or sell a warrant where the MM is the only bid or offer shown, if I put in an order at their price but with a higher volume than they're currently showing, will my whole order be taken anyway, assuming the price doesn't change significantly in the next few seconds?

I've noticed that the MM volumes tend to mirror the underlying volumes of the highest bid and lowest offer, so when few shares are available at those prices, the MM's volume for the warrants will be low as well.

So if, for example, I want to sell 10,000 warrants at 50 cents when the MM is showing a bid of 50 cents but a volume of say 4000, if I place the order in one go will it likely all go through, or will I just get the 4000 go through and then the MM perhaps move its bid down to 49 cents leaving me with 6000 as the lowest offer?

So far I've always waited for the MM to be showing sufficient volume before putting my order through, but once or twice that has resulted in me getting a worse price.

Cheers,
GP

GreatPig said:

If I want to buy or sell a warrant where the MM is the only bid or offer shown, if I put in an order at their price but with a higher volume than they're currently showing, will my whole order be taken anyway, assuming the price doesn't change significantly in the next few seconds?

I've noticed that the MM volumes tend to mirror the underlying volumes of the highest bid and lowest offer, so when few shares are available at those prices, the MM's volume for the warrants will be low as well.

So if, for example, I want to sell 10,000 warrants at 50 cents when the MM is showing a bid of 50 cents but a volume of say 4000, if I place the order in one go will it likely all go through, or will I just get the 4000 go through and then the MM perhaps move its bid down to 49 cents leaving me with 6000 as the lowest offer?

So far I've always waited for the MM to be showing sufficient volume before putting my order through, but once or twice that has resulted in me getting a worse price.

Cheers,
GP

Click to expand...

Hello GP,


Generally each issuer looks to purchase or sell the underlying stock when you buy or sell a warrant. This is to hedge the positions taken in the warrants they issue (when they sell warrants they buy a corresponding proportion of the underlying stock, if they buy warrants, they sell a corresponding proportion of the underlying stock).

The actual bid and ask prices and the market depth for the underlying stock are taken into account when determining the spread and volume on the bid and offer for the warrant. There are also ASX rules that the issuer must abide by.

In the scenario you outline, if there are limited shares available on the bid for the underlying stock when you are trying to sell your warrants (We’re using call warrants for this example), this may limit the amount of warrants the issuer will make available on the ask side of the warrant market.

If you use a limit order at 49 cents and only 4000 units are available at this time at 50 cents, generally 4000 of your warrants will transact at 50 cents. If no other bids come into the system before your order is executed, the remaining 6000 warrants will be offered at 59 cents in the ask. If the issuer then put any bid in at 59 cents or above, then up to 6000 units will transact at 59 cents depending on the volume the issuer’s system makes available (often these systems are automated based on the movements in the underlying, although operators can override the system).

So, the trick is to use a limit order at the bid when exiting, and not to enter an order below this amount if you have more warrants than are available at the time of execution. Otherwise a portion of your warrants may transact at your limit price.

Also, using the above call warrant example, note that a portion of your order may not transact since the issuer's selling the underlying stock (in order to hedge the warrants they just bought back from you) may move the price down, and the issuer may not offer the warrant at the same price until there is sufficient volume in the bid available in the underlying.

If the price action in the stock moves against you and doesn’t come back, it is quite possible that the remainder of your order may not transact at all (at least until the stock price moves sufficiently high enough for the issuer to make warrants available at the original limit price again).


Hope this helps


Regards


Magdoran

Thanks, Magdoran.

All fun and games

Cheers,
GP

Woops, the transactions should have been at 49 cants not 59...

I recently moved from warrants to options recently and haven't looked back.

Firstly, theres only one market maker - the warrant issuer.

They'd love to sell you as many as they can, but reluctant to buy back any (5000 ask #/500 bid # - CSLIMN today).

Then when you do want to sell in qty ie. 1000+, expect to get about 10c or so under the bid amount. Options on the other hand is done in lots of 1,000s (or whatever the adjusted amount is, which is pretty much close to, cept for wierd stuff like TTS etc). Selling 5,000 (5 contracts) isn't going to get you smashed by the MM.

Remember you can only long warrants, and that they hold the monopoly on buying them back. Options on the other hand has multiple market makers, plus punters like us who can both long and short.

And then theres the price...

CSLIMN, except for the dividend entitlement (which doesn't matter as CSL isn't declaring till next year and a couple of other minor things), its pretty much the same as a $47 December CSL call.

Difference in price? $1.50 - $2! $2-$4 for the call, $4-$6 for the warrant.

Summary: Tell the warrant MM to get f***ed and move to bought call/options options!

Oh and the rate of decay (theta) is way worse on the warrant (makes sense as your paying for more intrinsic value). On the CSLIMN comparison, its around 150% or so the decay of the option... add to that the crappy spread and your being royally screwed on warrants.