Banking group Absa has issued 27 new put and call warrants in order to keep up with the fast growth in South Africa’s warrants market, while also unveiling warrants on retail companies for the first time.
Warrants are contracts based on underlying equities that are listed on the JSE that, because of their gearing, allow investors to take bets on the underlying equity movement with either less or more risk.
Call warrants give the buyer or holder the right, but not the obligation, to buy the underlying share at a fixed price, known as a strike price, on a future expiry date.
Put warrants, on the other hand, give the buyer the right, but not the obligation, to sell the underlying asset at a fixed price on a future date.
Announcing the new warrants on Tuesday, Gizelde Brady, a member of the Absa Corporate Merchant Bank equity derivatives team, said the group had opted to issue the new warrants because of the strong rally in the underlying equity market recently, which had rendered warrants pricing very expensive.
Brady said put warrants were issued to cater for the more aggressive market players, with warrants having been issued on the platinum and gold sectors as well as on petrochemical giant Sasol.
“We have decided to include a few put warrants for the fainthearted who feel that the market has gone too far, too fast and believe that there will be a pullback.”
A foray had also been made into the retail sector for the first time, with warrants being issued on some of the best performing equities in the industry, she said.
“We have neglected the retail sector in the past. This is why we are introducing a few first-timers in the sector. For the first time we will list warrants on Edgars, Foschini, JD Group, Pick ‘n Pay and Venfin.”
She added that a warrant on pharmaceuticals sector star performer Aspen was issued because of popular demand.
The trading of the new warrants will start on Tuesday 23 August, while the exercise dates for the warrants are 16 March 2006 and 21 September 2006, respectively.
The benefits of trading warrants include increased exposure to various underlying assets, no margin calls, easy trading and lower transaction costs. These instruments are well leveraged, which means that their changes in price are much greater than those of the underlying assets in percentage terms. – I-Net Bridge