Warrants are generally used by investors to achieve leveraged exposure to underlying shares, indices, currencies, commodities and listed managed investments such as ETFs and REITs.
Due to the number of different types of warrants available in the market there are a variety of strategies that can be employed.
Instalments are a loan to buy shares. They allow investors to own the underlying share outright with two payments.
The unique feature that sets instalments apart from other types of warrants is that you are entitled to receive the dividends and franking credits paid by the underlying asset during the life of the instalment.
ASX has developed an online warrant education course that investors can go through at their own pace in order to learn more about the features, benefits and risks of instalment warrants.
The following booklets and brochures provide investors with an introduction to instalment warrants and also outline some common strategies;
- Instalment warrants - getting started
- Enhance dividend income and franking credits with instalments
Enhance dividend income and franking credits
Ex-dividend performance of ASX200 stocks - research paper
- Use instalments to leverage inside a self-managed super fund and increase exposure to potential capital growth, dividends and franking credits
Investment strategies within SMSFs
- Diversify an investment portfolio by extracting gains without incurring capital gains and re-investing the proceeds
Cash extraction - diversify without triggering capital gains
- Taxation treatment of warrants
Trading warrant strategies
MINIs account for over 70% of the warrant market and are commonly used by short-term traders looking for straightforward leveraged exposure to shares, indices, currencies and commodities.
They are used to trade the rise or fall (trade long or short) of an underlying asset and they can also be used by investors to protect a fall in the value of their existing share or portfolio; commonly known as hedging.
MINIs move on a one-for-one basis with the underlying share, have no expiry date and have an inbuilt stop-loss feature which means investors cannot lose more that their initial investment and will not incur a margin call if the trade moves against them.
Call and put warrants
Like MINIs, call and put warrants can also be used by investors to trade the rise or fall of the underlying asset over the short-term.
The following outlines how call and put warrants can be used;
- Using equity put warrants in a falling market
- Trading market falls - index put warrants
- Using currency warrants in a rising or falling market.
Note that for the purpose of simplicity, transaction costs, tax considerations and the cost of funding are not included in the examples.