Section 3 Flashcards
what is a covered warrant
gives the investor the right to buy (calls) or sell (puts) an asset (share, index, currency or commodity) at a specific price within a specific time period (or at a specified time). They can be therefore described as long dated options
how do covered warrants differ from traded options
they are a securitised derivative i.e. they are listed on the LSE and settlements are made through CREST
who issues a covered warrant
investment banks
who issues ordinary warrants
companies
how do banks issuing covered warrants cover their exposure?
By buying or selling the underlying security in the open market.
what is an american style covered warrant
can be exercised any point up to expiry
what is an european style covered warrant
can be exercised on the expiry date
how are the majority of covered warrants settled and what does this mean
cash settled
so no stamp duty
who can buy covered warrants
retail investors
life span of covered warrants
typically 6-12 months although up to 6 years
