Bolsas y Mercados Españoles

A warrant is a tradable security issued by an institution for a time period that gives the right (and not the obligation) by paying a price to buy (call warrant) or to sell (put warrant) a specific amount of an asset (underlying asset) at a specified price (strike) over the duration of its life or on its expiry date depending on its style.

From this short definition, some basic concepts are taken and defined as follows:

  • Time period: This refers to the warrant’s expiry date, which indicates the date from when the warrant no longer exists. The expiry date may or may not coincide with the warrant’s last trading day in the Stock Exchange Interconnection System.

  • Warrant price: This is the premium, that is to say, the effective price on what trades are executed on the Stock Exchange Interconnection System. The premium will be closely tied to the price evolution of the underlying asset related to the warrant.

  • Call warrant: this is a purchase warrant, that is to say, it gives the right to buy the underlying asset.

  • Put warrant this is a sales warrant, which gives the right to sell the underlying asset.

  • Ratio: This is the number of underlying asset units that a warrant gives the right to buy (call) /sell (put).

  • Strike: Established by the Issuer, it is the price at which the holder has the right to buy (call) / sell (put) the underlying asset at the time of exercising the warrant. Exercising a warrant is when the warrant holder executes his/her right to buy (call warrant)/ sell (put warrant) the underlying asset that the warrant refers to. Exercising a warrant involves its settlement, either by physical delivery of the underlying asset or cash (in euro).

  • Style: A warrant can be American-style or European-style. If the warrant is American, it may be exercised during the warrant’s life. On the other hand, if it is European, it can only be carried out on the warrant’s exercise date.


          Advantages of investing in Warrants

  • Traded on Spanish stock market in real time and continuously from 9 am to 5 pm.

  • Offer access to a large variety of assets: equities, commodities, currencies, etc.

  • Market maker's commitment to provide liquidity, offering buy and sell positions during each trading session.

  • Trading transparency as products are subject to strict oversight rules by the stock exchange governing body, Sociedad de Bolsas.

  • Can be used to implement different investment strategies.





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