Trading Warrants and Share Warrants

As easy as trading ordinary shares

What you should know about trading warrants

Warrants are options issued by third parties and traded on the ASX ITS platform, making them as easy to trade as ordinary shares.

This differs from Exchange Traded Options (ETOs) which are issued by and traded on the Australian Options Market.

A fundamental difference for investors is the requirement that you must own a warrant before selling it, which is not the case for ETOs.

The length of time that a warrant is held depends on the investor’s time horizon, although all warrants have a defined term after which they must be exercised or expire.

Trading Strategies

Even though warrants and options may sound confusing, trading strategies involving warrants are not dissimilar to actions undertaken with other assets.

For example, buying put warrants over shares you own is similar to holding an insurance policy on your car, house or contents. You can choose the time of coverage and the sale price for your shares, if you want to sell at all.

Types of Warrants

There are many types of warrants and many warrant issuers. The main warrant types are:

Plain call and put warrants (including barrier warrants)

Installment warrants (these securities carry the dividend entitlements of a fully paid shareholding under a deferred payment arrangement)

Index warrants (local and overseas)

Capital plus warrants

Endowment warrants

Liquidity risk - considered low

Liquidity risk is considered to be low as the issuer of the warrants normally provides both a bid and offer in the market to facilitate price discovery and trading.

Essential Reading

Before trading warrants, Minc requires that you read the ASX produced brochure called Warrants: Understanding trading and investment warrants. This will help you to appreciate and understand the risks associated with derivative trading.

For further information please visit the Warrants section on the ASX website.