Guide for Beginners

There are many warrant terms. Let’s start with the exercise price...

  • This is the key factor that affects the warrant price. Each warrant has its underlying assets, which may be indices, stocks, foreign currencies, commodities, etc. When the asset price changes, in theory, the warrant price will also change.

  • This is the price for buying (call warrant) or selling (put warrant) the underlying assets upon the expiry of the warrant.

    For investors, the choice of exercise price will affect the warrant’s hedging risk. Assuming other factors remain unchanged, the more out-of-the-money a warrant is, the higher its potential risk. In addition, the exercise price also affects the warrant’s value. The closer the exercise price is to the spot price of the underlying assets, the higher the warrant’s value will be. In-the-money warrants have an intrinsic value, which is the net positive value of the difference between the exercise price and the spot price of the underlying assets.

    HSBC
    exercise price is $70
Consolidate your memory immediately!
In which situation will a warrant have intrinsic value?
When the exercise price of a call warrant is lower than the spot price; when the exercise price of a put warrant is
Each warrant has an expiry date and a final trading day. Do you want to know how time affects the price of a warrant?
Please refer to
"Terms: Understanding Warrant Terms One by One (II) - Expiry Date"
Understanding Warrant Terms One by One
(2) Expiry Date (3) Entitlement Ratio (4) Leverage (5) Implied Volatility
Correct!
When the price of the underlying assets falls below the exercise price, the warrant will become in-the-money and have intrinsic value.
Wrong!
When the price of the underlying assets falls below the exercise price, the warrant will become in-the-money and have intrinsic value.