Warrants money management strategies

[#1]

Simon, the debate we were having on this topic in the trading strategies thread offered some really useful insights from your side, and I would like to open a separate thread. The issue of black swans aside, a warrant has additional time decay risks not associated with futures. E.G., if I wanted to enter into NPN on 22 may - a perfectly reasonable entry on my system. I would have no reason to exit and would be looking to take profit now, but would be faced with about 24% time decay? A futures contract would have cost me about 2%

[SimonPB]

few quick thoughts (I got meeting in 4 minutes so will reply more when back) .. cost of 2 months SSF interest on 1 NPN contract closer to R340 for period = 11% of margin .. then the 0.4% on buy and sell side .. not forgeting the futures roll over in June (maybe you bough longer dated contract, most don't but lets split it an say another 0.2% (roll over is only one side at 0.4%)) .. so add another R230 or 8% or margin .. warrant time decay for the same 8 weeks, you've assumed 3% .. about right, I like less but we'll live with 3% = 24% .. SSF is 19% .. now we got to talk cost of transaction, with warrants at flat broks of R50 SSF at 0.4% of underlying on each leg .. So for R10k NPN expsoure warrant is R50 +taxes .. SSF is R80 .. remembering that the warrant is flat .. so for R100k NPN exposure warrant is R50 +taxes and SSF is now R800 ..

[GL]

skaaptjop - this should be interesting thread. Will keep eye on it. My 2p worth is trade what you're comfortable with, be that shares, warrants, SSF's etc. I've tried them all, and straight shares and SSF's work for me - also don't like the time decay thing with warrants. But, for others, warrants work. All the best to them.