Index warrants

Index call and put warrants are a type of trading warrant. They are linked to the performance of a share price index such as the S&P/ASX 200 index or an overseas share price index. Index warrants enable you to benefit from moves in the overall market or a market sector, rather than from the price movement of an individual share.

The current index level and the relevant index futures contract influence the price of an index warrant.  

Example of an index warrant

Warrant code XJOWOG
Underlying instrument S&P/ASX 200 index
Warrant type Call warrant
Expiry date 1 December 2009
Exercise level 3,500 points
Exercise style European
Settlement Cash
Index multiplier $0.005 (1 index point = 0.5 cent)

You will receive a cash payment if, at expiry on 1 June 2005, the S&P/ASX 200 index is above the exercise level 3,500 points. For example, if the index at expiry is 4,000 points, you will be entitled to receive a cash payment of $0.50 per warrant.

The cash payment, also known as intrinsic value, is calculated as follows:

Intrinsic value = (closing level of index - exercise level) x index multiplier
                           = (4,000 - 3,500 points) x $0.005
                           = $2.50

Overseas index warrants

Index warrants may also be issued over indices which represent movements on overseas exchanges such as the S&P 500 index or the NASDAQ index.

The index multipliers can be in either Australian dollars or a foreign currency (with the foreign amount converted back to Australian dollars at the time of settlement).

Currency movements may affect the price of an index warrant, whose index multiplier is denominated in a foreign currency.

Example of an overseas index warrant

Warrant code

XDOWOJ
Underlying instrument Dow Jones Industrial Average
Warrant type Call warrant
Expiry date 1 December 2009
Exercise level 8,200 points
Exercise style European
Settlement Cash
Index multiplier US Dollar 0.0005 (1 index point = 0.0005 US Dollar)

You will receive a cash payment if, at expiry, the Dow Jones Industrial Index is above 8,200 points. For example, if the index at expiry is 8,500 points, and the relevant currency rate is 0.70 US Dollars per 1 Australian Dollar, you will be entitled to receive a cash payment of AUD$0.571 per warrant.

This cash payment, also known as intrinsic value, is calculated as follows:

Intrinsic value = (exercise level - closing level of index) x index multiplier
                         = (9,000 - 8,200 points) x $0.0005     
                         = $0.40  USD  (exchange rate: 0.70)                                                                                                                                           

The disclosure document outlines the terms and conditions for each warrant series. You should be familiar with those prior to trading. You can access information on how to find a disclosure document on the ASX website. Alternatively, you may contact your adviser or the warrant issuer.

Learn more about index warrants, visit our online warrants class.