Nedbank Warrants Nedbank Trading Warrants Nedbank trading warrants give you the ability to obtain leveraged exposure to shares and indices, with the potential for enhanced returns. What is a trading warrant? A warrant, in a trading sense, is an option contract typically issued by a bank such as Nedbank (the issuer) and traded on the Johannesburg Securities Exchange (JSE), much like shares. The issuer of warrants determines the structure and terms of each particular warrant issue. Quite simply, a trading warrant is an investment option that gives you exposure to an underlying asset at a fraction of the price of that underlying asset. This concept, known as ‘leverage’, enables traders to increase their exposure to the underlying asset. Several asset classes are now covered by trading warrants. These include the following: • Equity warrants, also called vanilla warrants, cover shares ranging from blue chips like Anglo American, Telkom or Standard Bank to the more speculative ones like Goldfields, Pick ’n Pay and Durban Deep. • Index warrants. Such warrants may be linked to the JTOPI40, covering the leading 40 shares on the JSE, or the INDI25, covering the leading 25 industrial companies on the JSE. • Basket Warrants cover a basket of shares. For example, a banking basket could include Standard Bank, First Rand, ABSA and Investec. Equity Warrants Equity warrants are the most heavily traded warrant product in the market. They offer traders the potential to make large profits quickly and hence can be quite risky. The underlying asset to which an equity warrant is linked, is a share (in this context referred to as ‘equity’) from which it derives its performance and hence its name. Traders are attracted to equity warrants because of the ‘leverage’ they provide. The price paid for an equity warrant is considerably less than for the underlying share it is linked to, yet it can capture up to 100% of the price movement of the underlying share. This means that, for a given movement of the underlying share price, a warrant holder will potentially make a greater profit expected as a percentage of capital invested, than what an investor in the underlying share would. Conversely, if the underlying share moves in the ‘wrong’ direction, warrant holders will be exposed to greater potential losses (again as a percentage of capital invested). Equity warrants give the holder the right to buy (Calls) or sell (Puts) a particular share for a fixed price on or before a future date. This means that traders can profit from a rise or fall in the underlying share price by trading Calls or Puts at different times, without being obliged to buy or sell the share itself. 2 Call Warrants A Call warrant gives the holder the right (but not the obligation) to buy the underlying security (Share, Index or Basket of Shares) for a fixed price (the exercise price) up to a specific future date (the expiry date). A call warrant is therefore purchased by a trader who believes the price of the underlying security is going to rise. Given that call warrants give the holder the right to buy a security at a fixed price, their value will tend to move in the same direction as the underlying security. The price of a call warrant will generally rise and fall in line with the underlying security. Put Warrants While call warrants give the holder the right to buy an underlying share in the future at a fixed price, a put warrant offers the opposite trading opportunity. The definition of a Put warrant is that it gives the holder the right (but not the obligation) to sell the underlying share for a fixed price (the exercise price) on a specific future date (the expiry date). A Put warrant is therefore purchased by a trader who believes the price of the underlying share is going to fall. Put warrants give holders the right to sell a share at a fixed price. With this in mind, their value tends to move in the opposite direction to the underlying share price. The price of a Put warrant will generally tend to rise if the underlying share price falls and fall if the share price rises. 3 Index Warrants As the name suggests, ‘Index Warrants’ are linked to the performance of a share price index such as the All-share Top 40 (JTOPI40) or the Industrial Top 25 (INDI25). What this means is that a trader or investor can profit from movements in the overall market, rather than a single share only. Index warrants are therefore popular with those investors and traders looking to gain maximum leverage from the movement in an overall share index. Index call warrants are also for investors who don’t want to “put all their eggs in the one investment basket” and/or don’t have readily available funds to purchase a portfolio of shares. Additionally, investors can use index put warrants to protect their existing share portfolio from anticipated falls in the overall market. For more information about Nedbank Warrants, Single-stock Futures, Share Instalments or Protected Share Investments, speak to your stockbroker or financial adviser, or call Nedbank on 011 535 4030 or email firstname.lastname@example.org. www.nedbankequitymarkets.co.za. Nedbank Limited Reg No 1951/000009/06 We subscribe to the Code of Banking Practice of the Banking Council of South Africa and, for unresolved disputes, support resolution through the Ombudsman for Banking Services.