warrants issuer push hdr lower, am i right?, page-3

meerkat -warrants issuer push hdr lower, am i righ I'm afraid i disagree Meerkat...warrant issuers DO have an interest in the level. For call warrants the warrant entitles the holder to receive a share (or a fraction of a share depending) on the exercise date. It is probably true that the issuer already holds the scrip to settle the physical calls when/if they are made. Of course if the warrant expires out of the money then the issuer will be very unlikely to be required to settle with physical. That shouldn't make them happy because they then have scrip that is probably worth less than they paid.

However, ask yourself how the issuer makes interest in the warrant? They act as a "market-maker" and sit on both sides of the market with a sell order and a buy order. The two are separated by a spread. If they buy and sell all of the trade every day ie. there is always a balanced volume, then they make the spread only. However, the more they can sell at a high price during the currency of the warrant and buy back at a cheaper price during the currency of the warrant the wider their net spread (=more profit).

So it is very much in the issuers interest for the share price to be up in the early days of the warrant with a good time value component while they sell, sell, sell...then for it to be lower towards the expiry date when they can then buy, buy, buy them back. There is risk for issuers, but part of their skill is to closley manage teh open interest and their holding during teh warrant currency period. from what I have seen the issuers of HDR call warrants have made a fortune over the last few years and i firmly believe there has been manipulation at times.

It would be a good idea if you watched the movie "Trading Places"...quite a funny movie and gives an idea of how futures and options can work.

Interested in any comments from those more learned than me.

regards
DF