b2 - rembrandt eto's or warrants, page-2

Hi B2, Theoretically, Equity Warrants and ETO's function the same except that Issuer's (usually Investment Banks)Write and traders can only Buy and Sell.

FAIR VALUE is calculated by BS or Binomial Option Pricing Models.

Warrants Market is LIQUID when there is Volatility in the Underlying stock and Bids/Asks represent FAIR VALUE. This is not always present.

Issuer MM's are required to 'have a presence in the Market' but no regulation as to quotes relating to FAIR VALUE ... horror stories abound.

THETA (time decay) eats away at your Warrant which forces the FAIR VALUE down at what can be an alarming rate. Good for the Issuer and bad for you.

Best to trade Volatile stocks at pivot points for SHORT TERM trades with tight stops. A good strategy is to ENTER 'out-of-the-money' trading with the direction to CLOSE 'at-the-money' as this represents highest LIQUIDITY in the Market and hopefully avoiding the MM.

An important part of Warrant trading is to Buy LOW IMPLIED VOLALITY and you need to be able to compare one offering from another as they do vary ... high Volatility kills your profit potential ... good for the Issuer and bad for you.

The Parity Website was a good Warrant data source but given the Warrant Market collapse it has been abandoned. Others such as Commsec have also stopped providing data.

Now is not a good time to be considering Warrants for this reason ... low LIQUIDITY means that the Issuer MM's are controlling the Market.

We have moved back into ETO's ...

I would suggest you 'paper trade' for a time to 'get your head' around the numbers and even then make modest trades ...

Cheers ... tight stops.


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