Simplistic View on How to Pick a Warrant
From Financial Literacy Wiki
How to Pick a Suitable Warrant
This is a very simple article on how to pick a warrant. This is suitable for beginners. Beginners are strongly encouraged to find out more about picking warrants.
Basically there are two areas one has to look at to pick a suitable warrant and they are:
- Direction of underlying assets
- Timing
Direction of underlying stocks
Firstly you must have an indication of the direction the price of the asset will take. This will dictate what type of warrants you want to pick, a call warrant or a put warrant.
For instance, a certain oil company have announced that they are building more oil rigs and you believe that Keppel Offshore & Marine will most likely clinched the deal. If you think this is good news for Keppel Corp, believing that it would push the stock price up, you could consider buying call warrants on the stock.
If you think that the price might fall, then you should consider buying put warrants instead.
Timing
One has to look at the time frame as well, because warrants have a limited lifespan. You must be confident that the stock price of the underlying assets will hit your price target before the warrant matures.
Thus you can see from here that the longer the time to maturity for a warrant, the higher the price of the warrants as well.
