Trade discount call warrants – invest cheaply with a discount

Trade discount call warrants – invest cheaply with a discount

How to find the right discount call warrant

Investors should develop a differentiated market assessment before buying a discount call warrant, since this product is particularly suitable for moderately rising markets. The position of the price of the underlying in relation to the strike price and cap is the control instrument for individual risk tolerance or expected returns. In principle, two strategies can be distinguished.

investors, the one more defensive strategy want to follow, choose a discount call warrant whose cap is equal to the current price of the underlying. In this constellation, the character of the product now corresponds to that of a leveraged discount certificate, because now rising prices are no longer the focus of interest, but the continuous gain in time value with constant or stagnating prices.

One more offensive strategy This is useful if investors expect the price of the underlying to rise and therefore choose a discount call warrant whose strike price is the same as the current price of the underlying. In this constellation, the character of the discount call warrant corresponds more to a classic call warrant. In order to make a profit, it is important that the price of the underlying asset increases – the more, the better. Investors only risk missing out on part of the possible return if the underlying price is above the cap.

When choosing the discount call warrant, investors should note that the product has a sufficient long term shows, so that the expectation of rising prices can be reflected in the price accordingly. Due to the option components it contains, the discount call warrant does not initially react as strongly to price increases as a classic call warrant, especially if the remaining term is long above the base price. By the end of the term, the price of the discount call warrant can be observed to increasingly approach its intrinsic value.

Important: Investors should keep in mind that rising prices are usually a sign of reduced uncertainty about the future development of a share or an index. On the options market, however, falling uncertainty usually means that volatilities or fluctuation ranges are falling.

Anyone who holds discount call warrants should note that although some of the positive price effects from rising prices could be offset by the negative impact of falling volatility, this effect is significantly lower than with a classic call warrant.

Our recommendation: Discount call warrants have thus proven to be a robust alternative to classic warrants or knock-out products, especially for newcomers to warrant trading.

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