Equity Warrants

Equity Warrants are a low-cost way to get increased exposure to a share.  They are the most heavily traded warrants in the market, and are used as a trading tool or for protection against adverse price movements.

Equity Warrants give your clients the right to buy or sell an underlying share at a specific price (the exercise price) on or before a specific date (the expiry date).

When your client exercises the warrant, they take up their right to buy or sell the share.

Macquarie Equity Warrants give your clients:

• a low-cost way to get increased exposure to a share
• the ability to trade based on their view about how a share price will move in the future
• the potential for greater returns than they might get from holding the underlying share (at a higher risk)
• a trading tool or a way of protecting against adverse price movements
• the ability to benefit from both rising or falling share prices
• a highly liquid investment, because they are listed on the Australian Stock Exchange (ASX).

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Call and put warrants

Equity warrants can be call or put warrants.

Call warrants:

• give your clients the right to buy the underlying share
• are used when they believe a share price will rise, and they want to benefit from that movement.

Put warrants:

• give your clients the right to sell the underlying share
• are used when they believe a share price will fall, and they want to benefit from the fall.

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Characteristics of Equity Warrants

Equity warrants:

• usually require the actual delivery of the share when the warrant is exercised
• generally trade between 3 and 9 months
• may be exercised before the expiry date (American style) or on the expiry date (European style)
• are traded on the Australian Stock Exchange (ASX)
• can be bought and sold through an ASX derivative accredited broker or online.

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Information for your clients

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How Equity Warrants work – an example

If you or your client believes BHP shares will rise, you may wish to back that view by buying call warrants over BHP shares. An example of a call warrant over BHP shares is shown below:

This warrant gives you and your client the right to buy one BHP share for $25.00 on or before 30 August 2001.

If BHP shares rise above $25.00 before 30 August 2001, the value of the warrant increases. They can sell the warrant on the stock exchange for a profit, or may wish to exercise it and buy the BHP shares.

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How leverage boosts return

Equity warrants give a degree of leverage - a small percentage change in the value of the share can lead to a large percentage change in the value of the equity warrant.

Here is an example:

The value of the warrant increased 43.33% for a 5.94% change in the underlying share price.

It's important to remember leverage works in both directions, so a fall in the share price would also cause a greater percentage fall in the value of the warrant.

Where we provide any advice on this webpage, it has been prepared by Macquarie Bank Limited ABN 46 008 583 542 (Macquarie) without considering your objectives, financial situation or needs. Before acting on any advice on this webpage, you should consider its appropriateness to your circumstances and, if a current offer document is available, read the offer document before acquiring products named on this webpage.

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