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American style warrantAllows you to exercise the warrant at any time up to and including the expiry date. Most call warrants are American style. Barrier levelThe critical price which, if breached by the share price, causes the warrant to expire or change its terms. Call warrantGives the holder the right (not the obligation) to buy the underlying share for an agreed price, on or before a specific date. Conversion ratioA ratio used to calculate the number of warrants you need to buy or sell one underlying asset. For example, a 2:1 conversion ratio means you would need two warrants to exercise into one share. DeltaThe relationship between the movement in the warrant price and the movement in the underlying asset or instrument. For example, in the case of equity warrants a delta of one (1) means the value of the warrant changes by one cent for every one cent change in the underlying share price. A delta of 0.5 means the value of the warrant changes by 0.5 cents for every one cent change in the underlying share price. Effective gearingThe performance of the warrant compared with the underlying asset or instrument over a short period of time. It is calculated using the formula: Effective gearing European style warrantAllows you to exercise the warrant only on the expiry date. Most put warrants are European style. ExerciseExercising is the process of converting the rights of warrants. For example, converting a call warrant allows the holder to buy a share at the exercise price. Exercise priceThe price at which you can buy or sell the underlying asset or instrument. Expiry dateThe date when the warrant will mature and no longer be listed on the stock exchange. In-the-moneyA call warrant is in-the-money when the exercise price is lower than the share price. A put warrant is in-the-money when the exercise price is above the share price. When a warrant is deep in-the-money the relationship between the movement in the warrant price and the underlying asset price is strong and linear. Intrinsic value of a warrantThe difference between the price of the underlying asset and the exercise price, divided by the conversion ratio. Out-of-the-moneyA call warrant is out-of-the-money when the exercise price is higher than the share price. A put warrant is out-of-the-money when the exercise price is below the share price. When a warrant is deep out-of-the-money there is little or no relationship between the movement in the warrant price and the underlying asset. PremiumThe cost of the warrant. This is the amount you must pay today for the right to buy or sell an underlying asset or instrument at a future date for a fixed price. Put warrantGives the holder the right (not the obligation) to sell the underlying share for an agreed price, on or before a specific date. Time decayThe fall in a warrant’s value over time. The time value of a warrant declines daily to zero by the expiry date. Time value of a warrantThe additional cost above the intrinsic value that investors are prepared to pay for the benefit of holding a warrant. Underlying asset or instrumentThe security from which the warrant’s value is derived, such as a share, a currency or a sharemarket index. Where we provide any advice on this webpage, it has been prepared by Macquarie Bank Limited ABN 46 008 583 542 (Macquarie) without considering your objectives, financial situation or needs. Before acting on any advice on this webpage, you should consider its appropriateness to your circumstances and, if a current offer document is available, read the offer document before acquiring products named on this webpage. Click here to view our Financial Services Guide.
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