Huge profit or nothing

The offer of investment products is still expanding with new products, starting with the need for a large number of investors. Even in our country, the so-called structured investment products, including warrants, have recently experienced a great boom. So in their tch their spch?

Structured products have recently experienced a big boom. It is the bottom of the structure and opportunities that provide investors. Through these products, they can better diversify their resources (through index certificates) or achieve above-average profits (warrants).

The first possibility of achieving high profits in a relatively short period of time is the biggest magnet for investors who have decided to evaluate their means of investing in a warrant. Warrants are similar to opce financial derivatives and their value are derived from the value of the underlying asset, which can be stocks, commodities, currencies, indices, etc.

What are warranties?

First, many people have options warranty knits. In essence, these two instruments are very similar, they differ in some basic points. Only issue warranties issuers, which can only be large financial institutions, investment banks, or brokerage firms. You set the terms of the warrant and the buyer has no opportunity to influence these terms. Anyone can list me on the other side of the option.

Another important difference is that when trading warrants, the so-called warrant ratio is applied, which is the amount of warrants needed to buy / sell one instrument. In contrast, one option corrects the sale / purchase of one share.

As their name suggests, warrants (in fact, that means first, right) represent first owner to buy or sell a certain amount of the underlying asset at a predetermined price at a predetermined time. The seller (issuer) is again obligation sell or buy from the owner of the tax

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underlying asset. In practice, the application of a warrant at the issuer in the form of a pre-underlying asset is not common and will be paid in pensions.

The duration of the warrant is fixed and usually ranges from half a year to two years. Warrants are divided into European and American according to style. The American warranty can be claimed at any time during the permanent period, the European warranty only on the day of expiration. With the warranty, the bag is traded on storm, or on over-the-counter market and the investor will make me a profit in this way as well.

Call & Put

Warrants are divided into call and put based on the relationship between the issuer and the principal. The call warrant allows the owner to purchase the underlying asset under a pre-determined condition. If nap. The owner owns a warrant call to the stock realized by price 300 K, I can first buy this share for the stated price even if the share price on the market will be at the time of expiration e.g. 400 K. The above graph shows that the maximum potential profit is unlimited, the maximum loss is the total price of the warrant, which in this case is 80 K. The turning point is the share price at which the investor starts to earn, the strike price is the realized price.

Call warant pklad

Put warrant again sell the asset to two owners of the first documents. The owner of a warrant put on a share with an realized price of 4200 K allows him to sell the share at this price, even if its price on the market will be, for example, 3800 K. The chart shows that the maximum potential is unlimited, 130 K.

Put warrant graf

Warrant value

The value of the warrant consists of two st. It is the value of times and the value of internal. The intrinsic value of the warrant depends on the price of the underlying asset, resp. its development and realized prices. In the case of a call warrant, the intrinsic value increases with the price of the underlying asset. When the price of the underlying asset is not the realized price, we are out of pension, otherwise we are retired. When the price of the underlying asset coincides with the price realized, we are retired.

In put warrant, it’s the other way around. The intrinsic value increases with the decreasing price of the underlying asset. In principle, the internal value can never be questioned. This is because the warrant is the first, not the obligation to buy or sell the underlying asset. Therefore, when the price of the underlying asset at the time of expiration is different, it was not a presumption that the warrant simply does not apply and we only lose what we have invested.

time, resp. speculative value results from the possibility that the value of the asset will move in the right direction. the time value changes over time and its byte accelerates with blc expiration time. While in the first half of life the warrant loses one-third of its value, in the second half the value of sn loses much more.

Since warrants are traded on a stock exchange or over-the-counter market, their price is

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as a result of supply and demand. Even the price of a warrant bag is affected by many factors, such as the price of the underlying asset, the realized price expiration time, volatility, or risk-free years of mra. A special case is the dividend. During the lifetime of the buyer of the warrant, the call does not claim the dividend paid, but the market price of the underlying asset is reduced by the dividend paid and the price of the warrant also decreases.

Where does the warranty apply?

Warrants are suitable for speculators using the pitting effect of these instruments. Investors use the invested capital to achieve above-average profits, which in the case of investment in the underlying asset itself would be achieved only with much more investment. Of course, there is also a high risk associated with above-average profits. Even with minimal movement in the prices of the underlying asset, the investor loses all the funds invested. In addition to speculation, warrants are suitable for hedging against losses in the underlying asset market.

Who are the warrants for?

Although the popularity of the warrant is currently on the rise, it is not expected that these instruments will be intended for a wide range of investors. Although warrants are also intended for small investors, more aggressive investors with a positive attitude towards risk, which requires high profits, should think about investing in them. Even with these investors, the bag should serve as a complement to the portfolio. In the case of unfavorable developments in the market, it is very easy to drink in a short time at a time invested. They have a warranty on the market and they also have their riskiness.

Have you ever considered investing in high risk instruments such as warranties? How is it related to risk? Darken on your views and attitudes.

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