Call warrants are becoming more popular in the US with eight call warrants issued so far this year compared with six in all of last year and four in the whole of 2012, according to SRP data.
Not one call warrant was issued between 2007 and 2011 according to the SRP US structured products database. This year Deutsche Bank and UBS have been the only issuers active in the call warrants segment, with the German bank issuing five call warrant products for a total of $4.5m and UBS issuing the remaining three for a total of $5.3m. In the past three years JPMorgan and Credit Suisse had also issued call warrants in the US market.
A call warrant gives the holder the right to buy the underlying share at a predetermined price or on a predetermined date. The strike price of a warrant is generally set out of the money and the product offers a leveraged return if the underlying index rises by more than the strike price. If the underlying increases by anything less than the strike price the product offers a decelerating loss. If at maturity the underlying closes below its initial level the investor loses all invested capital.
While a warrant is similar to an option in the sense that it has a strike price and an expiration date, the fundamental difference between the two are that warrants are issued by companies trying to raise capital whereas options are issued by brokerages or individual investors and can be listed on an exchange. Warrants also tend to have longer expiration periods than options.
SRP data shows that there are three call warrants live in the UK market issued by Goldman Sachs and Merrill Lynch between 2010 and 2011, two in Germany issued by Deka Investmentfonds in 2008, as well as one issued in 2011 in Switzerland by UBS, and one issued in 2005 in the Netherlands by ING Bank. There are also two autocall warrants aimed at international investors issued earlier this year by UBS and JPMorgan.