Mixing options with warrants

Discussion in 'Options' started by BigSalad, Oct 21, 2011.

  1. BigSalad


    Has anyone looked into positions where warrants and options are combined? For instance, warrants traded on Scoach? And would there be any retail or semi-pro software that could create risk-graphs of such positions or do you have to resort to Reuters or Bloomberg for that? Any contribution is highly appreciated.
  2. ASE1245


    What I would do is treat the warrant as an option and use free software online for FLEX options to value it using the terms of the warrant. Strike, days to expiration, look at IV of the regular options to choice a vol. Then remember something, warrants will always trade at a premium to your values. When you sell options, no issue, when you sell warrants you have to get locate and borrow them, often pay hard to borrow short interest.

    My strategy was to look for block sales in the warrant that enabled me to buy it near or below my fair value, than sell calls against it. Another consideration, you will not get margin relief, so it will require cash. Warrants have to be fully paid for and the short call will be considered naked.
  3. BigSalad


    Thank you, ASE1245!
  4. Warrants are similar to options - UL price, strike, TP, etc. - except perhaps with perpetual warrants, if they still exist. I would toss the details into a pricing model to see how they're valuing them (over/under the IV of existing options).