Warrants ... a Risk-Neutral trade is possible.

Hmmm.. for those following the I/Volatility of CBA of late and benefiting in the usual green way ... an interesting aside to demonstrate what can happen ...

Yesterday CBA traded at $29.90 for awhile and Warrant watchers would have been following CBAWPN and cousin CBAWOV as good examples for trading the swings ...

At that time CBAWPN Bid(for sellers) was $0.225 and CBAWOV Bid was $0.220.

A Risk-Neutral trade (strangle) was possible for those with a crystal ball and given todays price action ... succeeds in showing that a riskless-trade is possible with bought Warrants ... a theoretical 100k parcel both ways (200k total) for demonstration purposes ...

CBA has just hit $31.20 and with our theoretical position now sees CBAWPN at $0.39 and CBAWOV at $0.12 and it ain't over yet folks although I would be readying to close to protect profits ...

Our CBAWPN's are up ($0.225-$0.39) $0.165x100k= $16500 and our CBAWOV's are down ($0.22-$0.12) $0.10x100k= $10000 for a net of $6500.00.

Of course, theoretically, a strangle would see us drop the dead leg (Put in this case) to save the downside but for demonstration purposes have figured in the total loss ...

Again, one would need a crystal ball ... but to make the point ... a risk-neutral trade can be had with Warrants given the right circumstances ... and Volatility ... yum.



This is only my view ... read the red stuff.