DiffOptWnts - What are the key differences between options...

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Unformatted text preview: What are the key differences between options and warrants? Options and Warrants are category names for two financial product groups traded on ASX. In both cases the value of the product is linked to the value of another financial product. For example, the price of a Telstra warrant is linked to the trading price of a Telstra share. Some warrants are similar to the equivalent option. For example, Telstra call warrants may be economically similar to Telstra call options, with the key differences being outlined in the table below. Differentiator Which trading system? Which clearing and settlement system? Who issues them? The major differences between options and warrants arise because of the very broad range of warrant products available compared to options. For example, a Telstra call option is different to a 10-year Telstra instalment or a Telstra endowment warrant. When deciding whether an option or warrant suits your investment needs you should consider your financial objectives as well as what level of risk you want to assume. You should speak to an ASX Accredited Derivatives Adviser before investing in either product. Options DTP (ASX's options trading system) DCS (the Derivatives Clearing System) and CHESS (for payments) ASX decides which options to make available for trading according to market demand Standardised and set by ASX Equity calls and puts Index calls and puts Low Exercise Price Options (LEPOs) Spot (current) to 5 years Private clients and institutions Under ASX Market Rules, obligated market makers must provide either a quote request or continuous markets for specified spreads and quantities Check the ASX website for brokers who offer online services Yes Each option contract is over 1,000 shares What are the Terms of Issue? What types of products are available? What is their lifetime? Who trades them? What about Market liquidity? Warrants SEATS (ASX's share trading system) CHESS (the ASX share clearing and settlement system) A warrant issuer - usually one of the international investment banks or domestic banks Variable depending on the issuer and type of product Warrant products cover a wide range from capital guaranteed investments to instalments to high risk/high return trading warrants Between 3 months and 15 years Private clients and some institutions Under ASX Market Rules, warrant issuers currently undertake to `make markets' by providing at least a bid for the life of the product Yes in the same way as you trade shares online No Depends on the conversion ratio decided by the issuer: i.e., the number of warrants to get 1 underlying asset Yes you must sign a Warrant Client Agreement Form and read the orange ASX warrant booklet Can I trade online? Can I short sell or write How many shares can each product be exercised into? Are specific client agreements with my stockbroker required before I trade? Yes you must sign a Option Client Agreement Form and read the red ASX option booklet For more information, call ASX on 1300 300 279, email derivatives@asx.com.au or visit www.asx.com.au. Registering with the free website service `MyASX' allows you to subscribe to newsletters like the ASX Investor Update and ASX Traders Update. Visit www.asx.com.au/aboutmyasx to register. Australian Stock Exchange Limited ABN 98 008 624 691 ...
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This note was uploaded on 08/30/2009 for the course FINM 3405 taught by Professor Philipgray during the Three '09 term at Queensland.

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