Profitability of warrants

[Franschua]

I did a few calculations with Anglo warrants and I am of the opinion it is only the issuer that can gain from warrants. Anglo must grow at 2.5 % per month to maintain the same value of the warrant over 5 months. Anglo will not grow on average 30% per year. I had Sappi warrants and at one stage I was 60% up, at the end I end up 10% down. I am not going with warrants any longer, good if the market was down as from March, but with present conditions I think warrants will not perform

[#2]

I think warrants are great for short term trading. 5 months is way to long. I hold for 1 week. 2 at the most.

[Hedgehog]

If you were 60% up I think you should have taken profits. It is important to have entry and exit targets. But you make a good point - of course the issuer will make money, but the issuer is not responsible for trading decisions made by traders.

[Franschua]

Why should there be a time decay function on the warrant? If there is no time decay, warrants will be more attractive and will fulfill there a purpose, taking an option to buy or sell a stock in the future at a given price.

[Russ]

I agree,Franschua.Difficult to make money with costs,spread and time decay all working against you.Timing has to be spot on.

[SimonPB]

russ .. trading is always about timing ..
an 5 months for a warrant is not trading, that's trying to invest on the sheap .. you need a stocxk to be moving quickly to be a trader .. an time decay is there in a form in all derivative products ..

[Galuc]

The first NB point in trading warrants is that it is a short-term trading instrument, so holding it for 5 months is crazy. Warrants are for trading the ups and downs of the underlying share, its a splash and dash type thing.

[Franschua]

What is the statistics on warrants, how many investors actually makes money?

[SimonPB]

the stats on all derivatives is largely the same .. that about 10% succeed .. it is not about the product, it is about the person ..

[doomsdayza]

who's the 90% other side of the 10% losers?

[doomsdayza]

gargle argh *delete*

[Franschua]

Lets look at it from the issuers point of view. They sell the warrant at the start of the period before time decay, if you look at AGLSBL at approximately 90 cents at the current price, if the price remains the same, the warrant will be 51 cents at the date of expiry, they make 39 cents, what is the layout cost (cannot be very high). If you look at put warrants that is usually issued at the same time, the issuer is covered from both sides. This must be big money for the banks. This is like playing Lotto, the odds are against you

[SimonPB]

well except aglsbl is current 37c ?? but otherwise sure, the issuer of any derivative product makes profit as long as they keep their hedge book flat and take no risk .. what is essentially happening is that you are being sold risk .. but none of that has stopped me making consistant profit from warrants for almost 10 years now ..

[Franschua]

It was AGLSBJ I used. I took the warrant calculator and changed the date to 9 months before and to the date of expiry. This exclusively a speculative instrument. I quote Warren Buffet "Derivatives are financial weapons of mass destruction" The odds are against the trader and infavour of the issuer. On the question, What happens to the other 90%, you see your contribution on the financial results of the issuer.

[WES]

I have been trading warants for a year now. I started with R 30 k, and now R 80 K. I never keep warants long and very seldom buy put warrants. I never trade warrants shorter than 90 days.

[SimonPB]

never use the warrant calculator .. if you want historic prices check the price history .. the other 90%, they loose their money and as a rule they blame the product, but they would have lost regardless of the product .. as for buffett, yes, and he also has about $5billion worth of options !!

[SKALA]

Wes, why warrants and not CFD or SSF? Also how many shares do you watch for these trades?

[green_goblin]

hi simon dont listen to this looser, i love warents made quite a bit of profit lately, the only request i have is can your program the stop fall on the underlyeing share price, as for warren buffet hes getting old now, he reminde's me of a punch drunk Mohahmed Ali, think its time for him to take his pension

[Galuc]

Narrow view that green goblin and unnecessary, I have been trading warrants for about a year now and I struggle to make money with them, unlike Wes I went from R15k to R4k in no time! I am slowly recovering and learning but it is hard work and it is all about sticking to a system and getting ur psychy right but more importantly leave the emotions at home, not easy!

[SimonPB]

Galuc .. that's probably the best point on this thread .. "it is hard work" .. exactly .. and it won't happen over night .. I started in Oct 1997 and blew up a few portfolios before finally becoming profitable in April 2000 ..