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Warrants

Description of warrants
In economic terms, warrants are financial instruments whose price depends on the price or value of the underlying instrument. Underlying instruments are securities (shares, bonds), indices, interest rates, fx rates, etc. Warrants are securities which have an issuer.

 

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A warrant is the issuer’s unconditional and irrecovable obligation to pay the settlement amount to the holders of warrants.

  • For a call warrant, the settlement amount is the positive difference between the price of the underlying instrument and the strike price set by the issuer.
  • For a put warrant, the settlement amount is the positive difference between the strike price and the price of the underlying instrument.

The obligation of the issuer may be fulfilled not only by paying cash but also by delivering (i.e., selling or buying, respectively) the underlying instrument at the strike price.

Option warrants
Option warrants can be issued by banks and other financial institutions, for instance brokers, on shares of public companies, exchange indices, etc. Depending on the obligation of the issuer, warrantes have the following forms and styles: 

• European call warrant
gives the investor the right to buy the underlying instrument at the strike price at the expiry date or to receive the settlement amount. 

• European put warrant
gives the investor the right to sell the underlying instrument at the strike price at the expiry date or to receive the settlement amount.

• American call warrant
gives the investor the right to buy the underlying instrument at the strike price at any time up to the expiry date or to receive the settlement amount.

• American put warrant
gives the investor the right to sell the underlying instrument at the strike price at any time up to the expiry date or to receive the settlement amount.
 

 

Fulfilment of the issuer’s obligations
For European and American call warrants, the issuer’s obligation expires if, at the expiry date, the difference between the price of the underlying instrument and the strike price of a warrant set by the issuer is equal to or less than nil.


Likewise, for European and American put warrants, the issuer’s obligation expires if, at the expiry date, the difference between the strike price of a warrant set by the issuer and the price of the underlying instrument is equal to or less than nil.


In addition, for American warrants, the issuer can choose to exercise the rights under the warrant at any time (from the first day of trading of the warrant series until the day before the expiru date).


For all forms and styles of warrants listed on the Exchange, the issuer has the right to sell held warrants at a trading session. Trading in warrants is supported by a market maker (usually the issuer of the warrants). Warrants are traded in the continuous trading system.


Warrants on the WSE
The Warsaw Stock Exchange currently lists both European and American style call and put warrants (74 call warrants and 16 put warrants). Their underlying instruments are Polish assers: the exchange indices WIG20 and WIG, as well as shares of companies: PEKAO SA, PKO BP, KGHM, PGNiG, PGE, PKN ORLEN, PZU SA, TAURON, TP SA, PETROLINVEST. The issuer of the warrants and their market maker is Raiffeisen Centrobank.

 

Check warrant quotations: here

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