What are Covered Warrants

What Are Covered Warrants?

A warrant gives you, the holder, the right to buy (call) or sell (put) an asset. This asset might be shares, a whole index such as the FTSE 100, a currency or a commodity etc. The Issuer (provider) of the Warrant effectively issues you with a Contract Note or certificate through your broker as a proof of ownership as the holder.

· You, the holder can buy or sell this asset at a fixed price knows as The Exercise Price

· On or before a specified future date known as The Expiry Date.

· You, the holder will pay a small sum for these rights known as The Premium

Calls and Puts:

It is important for you to understand the difference between a call and a put. You can buy both a call and a put, but they are complete opposites.

A Call gives the Warrant holder the right to Buy the underlying asset.

A Put gives the Warrant holder the right to Sell the underlying asset.

You might see now that having the right to buy or sell the same underlying asset means that you have a very flexible and versatile instrument at your disposal.

If you think the value of the asset (let’s say a share) will rise in value, then you would buy a Call.

If you think the value of the asset will fall in value, then you would buy a Put.

I am in the process of preparing the complete educational module on Covered Warrants, please check back regularly for the full module.

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Although compiled to take account of British legislation, the fundamental principles set out in the modules apply to investment practice all over the world.

We do not give investment advice about individual investment products. Our aim is to give private investors a greater understanding of the many investment vehicles available to them so they can create and maintain a successful portfolio.

I am a private Options and Futures trader with an insight into many other investment vehicles. I am working hard to develop the modules, condensing the vast amount of information from many sources but, very occasionally, I have to stop for Tea and sleep so please, keep checking back for regular updates and don’t forget to subscribe.