Also known as Turbos, think of knock-out warrants as trading warrants – call and put warrants – with gusto. These warrants combine big leverage with big risk. And they’re not called knock-out warrants for no reason: these warrants come with an agreed barrier level, or share price, which if breached – in other words, should the share ever trade at this level – will terminate your Turbo automatically. This means that you forfeit your upfront payment.
If at maturity, the shares haven’t breached the barrier level, then the warrant issuer will reward you the difference between the closing price of your shares and the exercise price of the Turbo. Knock-out warrants are the warrant choice of the braver amongst us.