Warrant (finance)

Warrants (English warrants ) are securitized (that is designed as a securities ) options.

Unlike exchange -traded options and OTC options, warrants are also suitable for distribution at the retail market, because they can be traded in smaller batches. Buy and sell orders for warrants - can be assigned by specifying the securities identification numbers in a order system - just like stocks. An access to a futures exchange is not required.

History

In Germany it was the Karstadt AG, which in 1925 brought out a warrant to the U.S. stock market in New York. After the German prohibition of futures in 1929 was 1967, the German Lufthansa first time with a warrant bond to the German market. In 1989, the bank Trinkaus & Burkhardt the covered warrant introduces then, the so-called covered warrant.

Operation

Normally, warrants represent the right:

• After a certain Ratio
• A certain underlying asset ( underlying English ) ( eg, stocks, bonds, currencies, indices)
• At a predetermined exercise price
• Within a specified reference period (American option) or the end of a subscription period (European option)
• To buy ( call option) or sell ( put option )

In such classical warrants of the issuer is always the writer of the option.

Since warrants are derivatives and are therefore considered to be particularly risky form of investment for which there are banks which sell to their customers specific information requirements (see derivatives in the German legal system ).

Warrants issued in several ways:

• On the one component of bonds with warrants to be ( the so-called " traditional Warrant" ). Here, the warrants usually refer to shares of the company that issued the warrant bond. Such warrants are therefore associated with a (possibly contingent) capital. The running time can be up to 10 years.
• On the other hand they can be independently published as so-called "naked warrants ". Naked Warrants usually have maturities of up to 2 years. In the class also covers the emitted for the retail market warrants.
• A special form of "naked warrant " is the " covered warrant " ( eng. "Covered Warrants" ). These are call warrants, in which the writer of the underlying asset, usually shares in their securities accounts and thus served the warrant if exercised. Unlike warrants from bonds, this results in no capital. Warrants that are not secured by the Underlying, but on futures or other options are not designated as covered warrants.

Most warrants available on the market are naked warrants which are issued by various issuers (usually banks and other financial institutions).

In addition to these classical warrants some very exotic designs are offered, such as options on the fluctuation band of the Underlying, knock-out options, etc.