Top tips for using Covered Warrants

Make sure you keep track of the underlying asset

The value of a Covered Warrant is closely linked to the value of the underlying asset (eg share or index). So remember to research this underlying asset carefully before committing to a warrant, and monitor the performance of this asset regularly.

For example if you are backing an underlying share, you need to look at the latest news and company announcements and how they affect the share price.

Keep a close eye on the expiry date

The shorter time to expiry, the riskier the Covered Warrant. So the rewards could be higher, but so are the risks. As the warrant nears expiry is suffers from much greater 'time decay' ie its time value can fall sharply.

Conversely warrants that have a longer period to expiry date can cost more but should have much less 'time decay'.

Look at the type of warrants available

If a warrant is deeply 'in the money' then buying is more equivalent to buying the underlying share.

Buying a warrant that is 'out of the money' could bring higher potential returns, but the risks are obviously higher and the warrant could be worthless at expiry.