Warrant Quotes

[lucyrose]

Hello all,

Am new to forum but have been a share market player for a couple of years now. I now feel confident enough to invest profits in some some strategies other than buy and hold blue chips. Have been studying the trading of Warrants and was wondering if some kind person could answer a query.

When I get an online quote on a warrant, how do the "last" - "buy" - and "sell" figures work with the strike price. which figure do I use to calculate the price of the warrant. I hope this makes sense.

Regards
Lucyrose

 

[ice]

Hi lucyrose.

I am spellbound by your question!

Sorry, I know we all have to start somewhere but don't make the mistake of thinking that trading warrants (or ETO's) is an easy extension of share trading/investing. It isn't. These things can bite.....hard.

Haviing said that all warrant strikes/terms can be accessed at

http://www.asx.com.au/investor/warrants/index.htm

or the relevant issuers site.

Be careful. If you trade warrants you are generally trading against the issuer who is by definition a pro.

Good luck and.......be careful.

PS. 1 quick tip. If your warrant of choice has the 4th letter X it is a barrier warrant. Means that if the barrier is touched the warrant ceases trading instantly and holders have lost the lot. Be careful (did I mention that?)

ice

 

[lucyrose]

Thanks Ice,

Thanks for your reply,and concern. No, I am not rushing into anything. As I said, after I am confident I have enough knowledge, I am allocating some of my PROFITS from past successes to buy some installment warrants. Sometimes the only way I can get a real handle on something is to do it and experience and learn from the result.

Regards
Lucyrose

 

[lucyrose]

Bye the way, I have searched the ASX site and many others but just cannot find a definitive answer to my question.

Regards
Lucyrose

 

[ice]

I'm a trifle puzzled as to what it is you're seeking?

If you want to know whether the particular warrant is 'fair' value you need to either d/l and learn to use a Black/Schole calcuator or at least use the 1 set up on the ASX site.

http://www.asx.com.au/resources/calculators/warrants/theoretical_price_calculators.htm

Bear in mind however that many warrants have such poor liquidity that it's a 'take it or leave it' situation with the m/d the issuer offers. Though generally they won't stray too far from fair value since they make both sides of the market.

ice

 

[lucyrose]

Ice,
Thanks, I had a quick look at the calculators you pointed to. I think will find my answer there. Where is the one you set up? You must be some sort of braniac.

Regards

Lucyrose

 

[ice]

Hi lucyrose,

You may have misread my post. I can see how; I shouldn't have used 1 for 'one'.

Peter Hoadley's site has stacks on B/S modelling if you want to delve into it.

http://www.hoadley.net/options/options.htm

I know this is a heresy but personally I think B/S is indeed....um....b/s.


ice

 

[lucyrose]

Ice,

Interested in your warnings re investing in warrants. Like any other investment strategy, they obviously have their pros and cons.
Any share, even blue chips have their volatality and can lose value for any number of reasons. What is so inherently dangerous about warrants. From what I have learnt so far Installments warrants are safer than margin loans. Just a little more complicated in execution
And the whole world knows that gearing is the true path to happiness.

Yes you are betting against the pros, but the market has a bigger say in the result at the end doesn't it?

Regards

Lucyrose

 

[RichKid]

Ice,

Interested in your warnings re investing in warrants. Like any other investment strategy, they obviously have their pros and cons.
Any share, even blue chips have their volatality and can lose value for any number of reasons. What is so inherently dangerous about warrants. From what I have learnt so far Installments warrants are safer than margin loans. Just a little more complicated in execution
And the whole world knows that gearing is the true path to happiness.

Yes you are betting against the pros, but the market has a bigger say in the result at the end doesn't it?

Regards

Lucyrose

Hi Lucyrose,
I agree with ice about warrants being very risky. Read through the thread in the Derivatives forums (there are many, just browse through) and you will learn about pricing and volatility (similar concepts for options and warrants).
I'd hate to see you lose your profits in warrants, if you're making money now why take on more risk when the odds are skewed against you by the 'evil' market makers?
Good luck!

 

[bvbfan]

Watch out for market makers, in particular the 'big' investment bank.
They did some very shifty things a few years ago with HDR and PTD warrants to make sure they expired worthless.

If your looking at warrants then you'd need to work of the last traded price as well as the underlying co. share price. Sometimes the warrant may not have traded for days and the bid/ask would have no reference to the last price.(then you might need to use the mid price between the bid/ask)

 

[ice]

lucyrose,

There are two risks with trading any derivatives. The first is the tangible risk of high leverage which is readily recognised and generally understood.

The second, equally great but often ignored, is the 'head' risk. i.e you have to have to be able to function capably if the trade goes against you.
Many find they can't.

E.g. It is one thing to buy BNB at $20 and see it drop to $16. Not pleasant but most investors can rationalise it and say 'oh well I'm down 20% but it'll come back.'
However if you bought a BNB installment with BNB at $20 you may be down 80% and the clock is ticking. In that situation I have seen experienced investors 'freeze up', unable to make a decision. Sometimes they get lucky, sometimes not.

Trading/investing in leveraged, time decaying instruments tells you a lot about yourself.

I'm not trying to dissuade you. I agree leverage is the way to go if you are comfortable with it and installments are ideal in a bull market......assuming we still have one.

Just......be careful.



ice

 

[lucyrose]

Yes, well it may all have just become academic for me, given the market performance of the last couple of days.

The correction? we are having now may be a blessing in disguise for me because:

(a) It will will force me to take a longer look at derivatives before investing in them.
(b) It will create buying (unleveraged) opportunities in good quality stocks that i already own that have had a bit of a slide. sorry, correction!

Regards
Lucyrose