INVESTING IN WARRANTS
Warrants are included in the class of structured products, which carry the qualities of a securitized option. Warrants are written on a financial product or indicator. Such financial products, are called “underlying instruments”.
If the underlying instrument of a warrant is a single equity or a basket of equities, we use the term “underlying asset”, whereas in the case of warrants written on an index, the term “underlying indicator” is used.
The “underlying asset”, may be a single equity or a basket of equities. Such equities must be traded on İMKB, and included in İMKB 30 Index.
Example: A call warrant issued by Z bank, entitling the holder to buy the shares of ABC Incorp. at TL 6.00 on 20.12.2014.
Example: A put warrant issued by Z bank, entitling the holder to sell the shares of ABC Incorp. at TL 5.00 on 20.12.2014.
Warrants written on an index, on the other hand, provide cash flow to the holder, on the basis of the underlying index value on a particular date. Such indices are equity indices calculated by İMKB.
Example: A call warrant issued by Z bank, which entitles the holder to buy İMKB-100 Index at 80,500 points on 20.12.2014.
Example: A put warrant issued by Z bank, which entitles the holder to sell İMKB-30 Index at 70,500 points on 20.12.2014.
In contrast to equities, warrants do not offer the following rights:
-Share in liquidation
-Taking part in the company management
-Voting and right to information.
The buyer of a warrant does not buy the equity itself, but the right to buy or sell such security.
Risks of Investing In Warrants:
- Warrants have an expiry day and therefore a limited life.
- Due to leverage, buying warrants may be to one’s advantage or disadvantage, and therefore it should be taken into consideration that leverage may lead to high return as well as loss.
- As a result of the price fluctuations in the market, the invested money may be entirely lost. However, with warrants, the risk is limited to the amount paid for the warrant, the commission and other fees.
- It should be considered that the technical and fundamental analyses for warrant trade are subjective and the anticipations of such analyses may not be realized.
The issuer’s risk management policy against the risks associated with issuing warrants must be included in the prospectus. In accordance with the Communiqué, the prospectus is announced in the web sites of the issuer and the market maker. Investors should carefully examine the issuer’s risk management policy before making investment decisions.