Warrants: Warrants belong to the derivative financial instruments. That means that every warrant refers to a financial instrument and therefore reflects its respective market trend in a certain proportion. Basically, the purchase of a warrant is useful when you envisage with a substantial price movement of the base value.
At the stock exchanges warrants are offered from the emitter on many different base values, like single stocks, stock-packages, stock indices, bonds and bond indices, but also goods like oil or noble metals. The largest and topmost selling segments of warrant-trading are the warrants on indices, followed by warrants on single stocks. There is a big amount of warrants especially on European and American stocks. Titles are traded with a wide variety of durations and base values.
The decision for a buy- or a sell-warrant is made according to the direction of the expected movement. The holder of a warrant has the right to
a) buy or sell this base value (also called base instrument, base object or underlying) in a certain proportion (exchange ratio) at the capital market from an emitter at a predetermined price (base price or strike) within a fixed period (duration).
b) receive a proportionately amount of money.
Buy-warrants (Calls) / Sell-warrants (Puts): While “calls” back on the underlying’s increasing prices, the holder of “puts” expects that the rate of the base value is going to decrease. Therefore the right to sell this value to a predetermined price becomes more valuable the lower its rate is.
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