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Warrant

A warrant is a securitised option issued by a brokerage that gives the holder the right to buy or sell an underlying asset at a set price and trades on the exchange like a stock. Warrants are options adapted for retail investors: they trade on the BIST Equity Market like shares, require no margin and losses are limited to the price paid.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • The underlying can be a stock, index, currency or commodity; call warrants are bullish and put warrants bearish.
  • Warrants are used for leveraged short-term directional trades and limited-risk hedging.
  • time value decays quickly and the warrant can expire worthless.

Formula / calculation

Warrant price = (Intrinsic value + Time value) / Conversion ratio. The conversion ratio shows how many warrants correspond to one unit of the underlying. Leverage = Underlying price / (Warrant price × Conversion ratio). A market maker provides liquidity with continuous bid and ask quotes.

Interpretation

Warrants are used for leveraged short-term directional trades and limited-risk hedging. They control a large position with small capital and carry no margin call risk.

Pitfalls

time value decays quickly and the warrant can expire worthless. Because leverage is high, 100% losses are common. The price depends on the market maker’s quote; when volatility falls the warrant loses value even if the underlying is flat.

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Frequently asked questions

A warrant is a securitised option issued by a brokerage that gives the holder the right to buy or sell an underlying asset at a set price and trades on the exchange like a stock.

Warrant price = (Intrinsic value + Time value) / Conversion ratio. The conversion ratio shows how many warrants correspond to one unit of the underlying. Leverage = Underlying price / (Warrant price × Conversion ratio). A market maker provides liquidity with continuous bid and ask quotes.

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