Knowledge about Covered Warrants
Knowledge about Covered Warrants
What is a Covered Warrant?
A covered warrant is a security that grants the holder the RIGHT to buy or sell the underlying security to the issuing institution at a predetermined price, on or before a specified date.
1. The key elements of a covered warrant:
Call option (Buy CW) or Put option (Sell CW).
At a predetermined exercise price.
Underlying securities: Stocks, market indices, or ETF certificates.
On or before a specified date (expiry date).
2. Basic information of a covered warrant:
- Underlying security code: is the stock code used to issue the covered warrant.
- Expiry date: is the last date on which the warrant can be exercised.
- Exercise price: is the price at which the investor is allowed to purchase the underlying security when exercising the warrant.
- Conversion ratio: is the number of warrants required to convert into one (1) underlying security.
- Warrant type: European-style warrants only allow the investor to exercise the right on the expiry date.
