While warrants are often used in Europe to overcome high share prices, Michael Walker, head of warrants at Citibank, says they are a good way to take advantage of fluctuations in heavyweight Australian shares. Our blue-chips are quite volatile. They are moved by external factors, particularly our resource stocks. So you are getting a lot of intra-day movement. The return on a warrant depends on the price of the underlying share as well as the stock's volatility.
More volatility means the potential rewards, or losses, are greater.
The return also depends on the time left before a warrant expires. The closer a warrant gets to the end of its life, the less it is worth. As a result, issuers such as Societe Generale and Citibank are introducing longer-dated warrants that are more resistant to the affects of time decay. There are many types of warrants. The recurring theme with warrants is that they take a lot of work.