The nice thing about trading warrants is that, unlike options and futures, they are bought and sold on the ASX like shares. For speculators looking to punt on short-term price moves – warrants might be just the vehicle you’ve been hunting for.
Trading warrants consist of calls and puts. Options and futures traders will be all too familiar with this terminology, but newcomers take note: a call warrant is purchased when you think the underlying security (either a share, index, currency or commodity) will increase in price over the life of the warrant. A call warrant grants you the right, but not the obligation, to buy the underlying security – such as a share – for a fixed price, called the exercise price, at a future date. If the share price is lower than the exercise price on the expiry day, the warrant is worthless. If the share price has appreciated over this time frame, you’re in line to receive your reward.
A put warrant involves the opposite scenario. Basically you buy a put warrant when you think the underlying share will fall in price, and if it does, fantastic. If not, you will lose your initial outlay.