What a warrant offers investors with the time and nous to watch the market on a regular basis is the chance to make impressive profits from relatively stable blue-chip shares. Warrants enable investors who think they can pick the short-term movement of a stock to cash in on that punt without outlaying the full price of the share. Of course, the flip side is that the risks are much higher. Along with the large investment banks, the ASX has been busily promoting the product over the past year as investors grow more interested. Murphy says that apart from the end of the tech boom, the entry of global players Societe Generale Australia and Citibank has also reinvigorated the market.
Warrants also offer more transparency than other products such as exchange-traded options.
Investors can check the price by punching in its code rather than getting an electronic quote through a dealer, as well as benefiting from tighter spreads than exists in many options markets. 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.