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About Trading Warrants
Product Offering
Click here to view current trading warrants What Is a Trading Warrant? Trading Warrants are securitised warrants that can be traded on a Stock Exchange.
Call Warrants
A call warrant is the right to buy a
share at a predetermined price. The following examples illustrate
the principle of a call warrant.
Let's assume you want to invest in the mining industry. The "Gold Nugget" mining company looks like a thriving business. As an astute investor, you don't want to miss out on this opportunity. Shares in Gold Nugget are currently $10, which you hope will quickly appreciate to, for example, $15. This would give you a profit of $5. If you are wrong and the share price falls to $7, you would lose $3. Rather than taking the risk of buying the shares directly, you can buy a share through a Call Warrant on the Gold Nugget share. This may cost $0.80 and gives you the right to buy the share for a predetermined warrant term, at the fixed price of $10. If the Gold Nugget share does go up to $15 the warrant would be worth at least $5, because the warrant allows you to buy the share for $10 and immediately sell it again for $15. Rather than actually buying and selling the share, however, you would simply sell the warrant itself for $5. After deducting the purchase price of $0.80, you end up with a profit of $4.20. The down side of a call warrant is if the share price falls. If this occurs the warrant is effectively worthless because no one would pay $0.80 for a warrant with a $10.00 strike price, when the share itself can be bought in the market for $7. If you predict that the share is not going to move upwards, the best strategy is to sell the warrant as soon as possible before expiry, in order to limit any losses. In any case, you cannot lose more than the $0.80 warrant that you paid in the first place for the warrant. When you buy a warrant, you know from the very beginning what your maximum possible loss could be.
Put Warrants
A put warrant offers a similar
opportunity to call warrants, except that your profits are
related to the share price falling rather than rising. Using the
same example, a put warrant would entitle you to sell one Gold
Nugget share for $10. Let's say the put warrant costs $0.60. If
the Gold Nugget share price plummets to $6.00, the put warrants
will be worth at least $4 because you can now buy a share for $6
and immediately sell it again, using the warrants for $10. The
difference of $4 is your profit, less the initial purchase price
of $0.60.
Similar to call warrants, if the price went up to $12, the warrant would be worthless because investors could sell the share for $12 in the market, while your warrants is only worth $10. Again, the best strategy if you predict that the price will not go back down before the expiry of your put warrant is to sell your warrants as soon possible. Your risk is always limited to the price you paid for the warrant in the first place, in this case $0.60
Buying Trading
Trading warrants are securitised financial instruments that are
listed on the Australian Stock Exchange (ASX). Like shares they
are traded on the Stock Exchange Automated Trading System (SEATS)
and therefore, investors can trade them exactly the same way.
Citigroup undertakes to make a market on SEATS during market
hours, for example; quote buy and sell prices up to maturity of
the warrant. You can buy and sell warrants through any online
broker, full service broker or financial planner using your
regular brokerage account.
Risks
For more information about risks involved with investing in warrants
and structured products please click here
Disclaimer
The Financial Products referred to on this page are issued by Citigroup Global Markets Australia Pty Limited (ABN 64 003 114 832 and AFSL No. 240992, a Participant of the ASX Group and a Participant of the Sydney Futures Exchange Limited. This Site is provided for information purposes only and is not an offer, solicitation, recommendation or advice to buy or sell CitiWarrants®. While the information is based on sources believed to be reliable, we do not guarantee its accuracy and it may be incomplete or out of date. For complete and accurate information on CitiWarrants, refer to the relevant Product Disclosure Statement on this Site. Prices quoted may differ from the actual prices at which an investor may buy or sell a Warrant. Warrants can be traded on ASX and investors can obtain a copy of the Product Disclosure Statement by contacting a Citigroup Wealth Advisor Financial Consultant or the CitiWarrants Hotline on 1300 30 70 70. Investors may also apply for CitiWarrants under the Product Disclosure Statement. Warrants are not bank deposits or obligations of, or guaranteed by, Citibank, N.A., Citibank Pty Limited or any of its affiliates or subsidiaries and are subject to investment risks, including the possible loss of the principal amount invested. This information does not take into account the investment objectives or financial situation of any particular person. Investors should be aware that there are risks of investing and that prices both rise and fall. Investors should seek advice from a Financial Consultant based on their own circumstances before making a decision. Citigroup and the Umbrella Device logo are service marks of Citigroup Inc. or its affiliates used and registered throughout the world. © 2006 Citigroup Global Markets. |
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