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Warrants

Gain exposure to the profit potential of an asset for only a small upfront investment via warrants. 

Trade Warrants from 
$14.95

*Conditions apply

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Insights & Ideas

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Insights & Ideas

 

Overview

Most warrants offer a degree of gearing and give the warrant holder the right but not the obligation to buy, sell or participate in the performance of an underlying investment, before or on the expiry date.

Being a derivative security, warrants obtain their value from other assets such as shares and exchange-traded products (ETP), a basket of different securities, a share price index, debt, currencies, or commodities.

By purchasing warrants, investors have the potential to magnify their capital gains (and losses) depending on the performance of the underlying asset(s) and potentially increase their portfolio income while investing a smaller amount.

There are more than 3000 warrants that trade on the ASX and offer exposure to investments including shares and exchange-traded products (ETP), a basket of different securities, a share price index, debt, currencies, or commodities.

Certain types of warrants are eligible for use by and popular among Self-Managed Superannuation Funds (SMSFs) seeking to gear into the market.

Features

  • Trade Warrants online from $14.95*, enjoy the best value brokerage of the Big Four banks as rated by clients.^
  • Australia’s only free real-time ASX live/dynamic streaming data service for all clients (eliminating the need to refresh prices).
  • Access to nabtrade's Warrants valuation (Black-Scholes model) calculator and payoff diagram.
  • Settle Warrants trades with nabtrade’s fully integrated cash account.
  • An integrated seamlessly linked High Interest account.
  • Ability to review other nabtrade Clients Warrants activity.
  • Access to our new global stock scanner that allows you to filter thousands of investments down to meet your criteria.
  • Free buy, sell, hold and technical research recommendations powered by the research methodologies of Morningstar, Columbine Capital, Trading Central, Thomson Reuters, Wise Owl, SmartText, Broker Consensus and nabtrade’s Research Team reports.


^ Investment Trends 2015 Second Half Australia Online Broking Report, based on a survey of 13,910 investors.

Why invest in Warrants?

The main reason investors purchase warrants is to gain exposure to an asset without having to pay the full amount of capital for that underlying investment upfront. Warrants may also be used for strategies including speculating on price movements, boosting portfolio diversification, increasing income and hedging portfolio risk.

Broadly, there are two types of warrants:

Investment Warrants Trading Warrants

Why are they used?

Borrow to invest in shares and increase exposure to potential capital growth, dividends and franking credits.

Why are they used?

Trade the rise or fall of shares, indices, commodities and currencies.

Investment time-frame: Medium to long term.

Investment time-frame: Short to Medium term.

Key benefits: Leverage and no margin calls.  

Key benefits: Leverage and no margin calls 

Used by: Self-managed Super Funds and individual investors.  

Used by: Shorter-term traders and some individual investors. 

Benefits

  1. Leverage – Most warrants carry some degree of leverage and thus give investors the opportunity to magnify gains (or losses) depending on the performance of the underlying asset(s).
  2. Lower initial capital – By purchasing warrants an investor gains economic exposure to the performance of the underlying investment(s) for less money than having to buy it outright.
  3. SMSF benefits - Along with being an eligible form of gearing within an SMSF, instalment warrants may also provide additional benefits for SMSFs. The enhanced income and franking credit stream and the potential deductibility of prepaid interest might be used to offset tax on other income earned by the fund, and tax payable on contributions made to the fund.
  4. Increase investment income - Instalment warrant holders are entitled to the full dividends and franking credits of the underlying shares. This boosts the yield of the portfolio given the lower initial contribution.
  5. Cash extraction – Investors can convert existing shares they hold into instalment warrants through a process called 'cash extraction' which unlocks wealth to invest elsewhere.
  6. Portfolio protection - Some types of equity and index warrants allow the warrant holder to protect the value of their portfolio by locking in a sale price.
  7. Risk management - Some types of call and put warrants can expire worthless, however, the loss is limited to the invested capital whereas losses could be a lot higher if an investor held the underlying instrument.

Risks

  1. Market risk - The market price of warrants is affected by the same risks that affect all stock market investments such as movements in domestic and international markets, the present and anticipated economic environment, investor sentiment, interest rates, exchange rates and volatility (see the later discussion for the impact of volatility on warrant prices).
  2. Issuer risk - Each warrant is a contract between the warrant issuer and the warrant holder. The warrant holder is therefore exposed to the risk that the issuer (or its guarantor, where relevant) will not perform its obligations under the warrant.
  3. Leverage - Leverage is a double edged sword, with a warrant likely to move both up and down more rapidly than the underlying instrument.
  4. Limited life - Warrants have an expiry date and therefore a limited lifespan.  Unless the underlying share price is above the exercise price for call warrants or below the exercise price for put warrants upon expiry, the warrant will expire worthless.
  5. Time decay - Warrants are decaying assets so it is important to monitor expiry dates and know when to exercise a warrant.

 

Tools and Resources 

nabtrade provides Warrants educational material and links to resources at the following locations.

Warrants education information

 Products - Warrants - click here

 Understanding Warrants - PDF - 665KB

 Warrants fact sheet - Market Making - PDF - 111KB

 - Warrants & Instalments online course - click here

Deloitte - Taxation of Warrants - PDF - 361KB

nabtrade YouTube channel - click here

nabtrade’s public Insights & Ideas section - click here

How to invest in Warrants with nabtrade 

  1. Open a nabtrade account - click here
  2. Log in to nabtrade and access the Administration section and apply for Warrant trading.
  3. If you chose to fund your Warrant trades with a cash account, transfer funds via a linked nab account, BPay or direct credit from another institutions account OR, if you selected a nabtrade margin loan – you may transfer securities or cash to the loan account – click here to learn how.
  4. Once we have confirmed your account is set up for Warrants trading, choose your investment using nabtrade’s market data, news and research.

 

* Warrant trades up to and including $5,000 are $14.95 (incl GST) per online trade. For trades over $5,000, brokerage is $19.95 (incl GST) per online trade (up to and including $20,000). Over this amount, brokerage of 0.11% of trade value per online trade applies. For more details on fees and charges refer to the nabtrade Financial Services Guide.