What Are Structured Warrants?

What to look out for before investing in structured warrants

Action 1 – Understand the characteristics of warrants
As for other investment products, you should get a clear view and gain a better understanding of the nature of warrants, i.e. how it works, its benefits, as well as the risks involved. This is to ensure that warrants are the right investment product that matches your investment goals.

Action 2 – Identify the market direction
A warrant is a derivative product and its value is directly linked to the price of the underlying shares. If the price of the shares goes up (or down), the price of the warrants will move in tandem. For instance, if an investor anticipates that the market will do well, he can buy a call warrant to take advantage of price increases in the future. In the case of cash-settled warrant, if the current price of the underlying share is higher than the warrant’s exercise price and the warrant is exercised (before the maturity period), the holder will be entitled to the cash amount, i.e. the positive difference between the current price of the share and the warrant’s exercise price.

Action 3 – Determine the investment horizon
Set a deadline for the underlying share to reach its target level. Remember that structured warrants are a short-term trading instrument and will expire after the exercise period.

Action 4 – Comparing warrants
When you have narrowed down your choices to two to three warrants, you need to compare the warrant prices by identifying how the price of the underlying share fluctuates during a specific period of time. As a general rule, a warrant with a stable price fluctuation is a better choice for investment.