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					Warrants
         Contents

         Introduction                   1

         What is a warrant?             2
         Call warrants
         Put warrants
         Strike price
         Underlying asset
         Expiry date
         Exercise of warrants
         Cover ratio


         Benefits of a warrant           3
         Leverage
         Increased exposure
         No margin calls
         Ease of trade
         Lower transaction costs


         Pricing of warrants            4
         Underlying share price
         Time to expiry
         Dividends
         Volatility
         Interest rates
         Summary of parameters


         Trading strategies             5
         Leveraged trading
         Delta
         Limited risk trading
         Out of the money warrants
         In the money warrants
         Gearing
         Effective gearing
         Time horizon
         Time decay
         Underlying asset


         Basket warrants                7
         Call warrants
         Put warrants
         Hedging with basket warrants
         Trading basket warrants


         Glossary                       8

         Disclaimer                     9




page 2
Introduction
Investec is an international, specialist banking group that provides a diverse range of financial products and services to a select client
base.

Since inception, Investec has expanded through organic growth and strategic acquisitions and now has an efficient integrated
international business platform, offering all the group’s core activities in South Africa and the UK and select activities in Australia.
Investec is organised as a network comprising five business divisions: Private Client Activities, Capital Markets, Investment Banking,
Asset Management and Property Activities.

In July 2002, Investec implemented a Dual Listed Companies structure with linked companies listed in London and Johannesburg. A
year later, it concluded a significant empowerment transaction, where the group’s empowerment partners collectively acquired a 25.1%
stake in the issued share capital of Investec Limited.

“Capital Markets, Equity Derivatives (“Equity Derivatives”)” is responsible for product issuance, market making, arbitrage and principal
trading in equities and equity derivatives. Equity Derivatives has offices in Australia, Ireland, Mauritius, South Africa and the UK.

Clients of Equity Derivatives have access to a wide range of derivative products in the developed and emerging markets. This includes
the issuance of securitised derivatives and covered warrants. The team also originates and structures equity based solutions that are
tailored to meet clients’ objectives.


What is a warrant?

In their simplest form, warrants are options that are sold as securities and traded on a registered stock exchange. Warrants are tradable
rights to buy and sell shares. Through the leverage effect, warrants are able to amplify the price movements in underlying shares. While
warrants are speculative instruments, they should be viewed as tools to allow investors to modify their risk profiles through the leverage
gained.

There are two basic types of warrants: call and put warrants.


Call warrants

Call warrants give the buyer (holder) the right, but not the obligation, to buy the underlying asset (share) at a fixed price (strike price) on
a future date (expiry date).

These warrants allow investors to profit from share price rises, as the price of a call option will increase exponentially with the
corresponding rise in the underlying asset and fall if the underlying asset falls, all other things being equal. For the holder of a call
option, the potential loss is limited to the amount of premium paid.

Buying a call warrant




Payoff




                                   Share price




                                                                                                                                            page 3
Put warrants

Put warrants give the buyer (holder) the right, but not the obligation, to sell the underlying asset (share) at a fixed price (strike price) on a
future date (expiry date).

Through put warrants, investors can profit from share price falls, as the price of a put option will increase with the corresponding fall in
the underlying asset and fall if the underlying asset rises, all other things being equal. For the holder of a put option, the potential loss is
limited to the amount of premium paid.

Buying a put warrant

Payoff




                                  Share price




Strike price (or exercise price)

The strike price is the pre-determined price at which the underlying asset can be bought (calls) or sold (puts) if the warrant is exercised.


Underlying asset

While shares are the most common underlying assets in the covered warrant issues, indices, baskets of shares, bonds, commodities
and currencies can also be used as the underlying asset. For simplicity we shall refer to the underlying asset as shares.


Expiry date

The expiry date of a warrant refers to the last date on which a warrant can be exercised. American style warrants can also be exercised
on any day up to and including the expiry date. European style warrants can only be exercised on the last date or expiry date (this does
not, however, exclude investors from trading the warrants during their issuance).


Exercise of warrants

Exercise of a call warrant implies buying the underlying share at the strike price. In the case of a put warrant, the underlying share
would be sold and the investor would deliver these shares to the issuer. Warrants can also be cash settled. In this case, the holder is
paid an amount (if any) by which the price of the underlying is more than (call) or less than (put) the exercise price.

The exercise of a warrant will only be profitable to an investor if the share price is above the strike price for a call warrant or below the
strike price for a put warrant.


Cover ratio

Many warrants have a cover ratio, which relate to the number of warrants necessary to exercise one share. For a warrant that has a
cover ratio of five, five warrants are needed to exercise one share.




page 4
Benefits of a warrant

Leverage

Investec warrants are a leveraged share investment. This means that the price changes of a warrant, in percentage terms, are much
greater than the price changes in the underlying share. Unlike futures or margined trades, however, the maximum loss for the investor is
limited to the warrant price paid.

180%

160%

140%

120%

100%

 80%

 60%

 40%

Period    01     02     03     04     01     02     03     04

         Underlying             Call Warrant

Fig 1 This chart illustrates that for movements in the share price, the call warrant price will show geater price movement as a
percentage of capital invested.


Increased exposure

As warrants cost only a fraction of the underlying share price, investors can increase their exposure to the underlying share while
committing significantly less capital to the trade. By using this increased exposure, investors can realise the same returns as the
underlying share and the additional capital can be used for further investment.


No margin calls

Investors are not obliged to commit additional capital once a warrant has been purchased. The warrant may be sold, exercised or
allowed to lapse. The maximum potential loss is limited to the amount paid for the warrant, including transaction costs, while the upside
potential is unlimited in the case of calls and only limited to the amount that the share can fall in the case of puts.


Ease of trade

Investec warrants are listed on various stock exchanges and can be traded by all registered brokers with access to that specific
exchange. Investec will ensure an active secondary market in the warrants, providing bids and offers during market hours.


Lower transaction costs

Warrants allow leveraged exposure to the underlying share for a significantly lower price than purchasing the actual asset. This
translates into lower transaction costs since they are usually based on the size of the investment.


Pricing of warrants

Underlying share price

The most influential variable affecting the price of a warrant is the underlying share price. The value of a call warrant will increase with
an increase in the underlying share price and will correspondingly decrease with a fall in the underlying share price. Conversely, put
warrants will increase in value with a fall in the underlying share price and fall with a rise in the underlying share price.


                                                                                                                                       page 5
Time to expiry

The longer the warrant has until the expiry date, the greater its value. The reason for this is that there is a longer period in which the
underlying share price has to move “into the money”. A short dated warrant will therefore be cheaper than a longer dated warrant, all
other variables being equal.


Dividends

As warrant holders do not receive dividends, higher than anticipated dividends adversely affect call warrants. They do, however, benefit
the holders of put warrants.


Volatility

Volatility is a measure of the risk inherent in the underlying share. Volatility measures the risk of movement of the share - the higher the
volatility of an underlying share, the higher the price of the warrant. This is because a share with a higher volatility will have greater risk
and is therefore more likely to move sharply towards or away from its strike price than a share with lower volatility.


Interest rates

Higher interest rates affect the price of call warrants positively, as the use of warrants allows the investor to gain exposure to an asset
for less capital commitment, thus freeing up cash that could be held in a call account and earn interest.


Summary of parameters

The table summarises the effect of an increase in the various parameters determining the price of a warrant on the level of the premium
for calls and puts.


 Factor                              Movement                            Call price                          Put price
 Price of underlying share
 Life span of warrant
 Volatility
 Strike price
 Interest rates
 Dividend rate


Warrant price



                         warrant premium
                                                                       TV = Time value
                                                                       IV = Intrinsic value
                                           TV


                                                IV

    out of the money      at the money                in the money
                                                          underlying price


Fig 4 Call warrants




page 6
Trading strategies

Leveraged strategies

The leveraged method of trading warrants is the most common method used for short-term trading, in the expectation of making a
profit from a move in the underlying share.

Consider the example below:
Share price                       R20.00
Call warrant price                R4.00
Share increase                    R2.00 or 10%
Warrant increase                  R1.00 or 25% (50c increase for every R1.00 in share)

The objective is to increase the profit through the use of leverage. In the example, a profit of 10% can be increased to 25% by the use
of a warrant.


Delta

The price of a warrant is highly correlated to its underlying asset. The measure of this correlation is called the delta.

In effect, the delta measures the change in the price of a warrant when the underlying share price changes. A warrant with a delta of
0.5 (or 50%) will move 50c for every R1.00 move in the underlying share. A warrant with a higher delta will therefore have a greater
move than one with a lower delta; this becomes useful in comparing different warrants over the same share.

It is important to note that as the underlying share price moves, so does the delta. The delta of a warrant can move between zero and
one (0% to 100%).

      For calls, deltas vary between 0 and 1
                            Strike price
1,0

0,8

0,6

0,4

0,2

0,0
      out of the money     at the money          in the money

Fig 2 Delta of a call warrant


Limited risk

Through the limited risk method, the investor gains the same percentage gain as the share. The exposure to the market (capital
committed), however, is significantly less.

Consider the example below:
Share price                       R20.00
Warrant price                     R4.00
Warrant delta                     0.5
Share increase                    R2.00
Warrant increase                  R1.00
Share outlay                      R20.00 per share
Warrant outlay                    R8.00 (2x R4.00)

Here the objective is to capture the same profit as the share - in this case R2.00. By purchasing two warrants instead of one share, the
total outlay is R8.00, thus lowering the cash exposure to the market.




                                                                                                                                  page 7
Out of the money warrants

The further “out of the money”, the cheaper the warrant is likely to be. As the warrant is less expensive, it is likely to have greater
leverage than “at or in the money” warrants. If the expectation is for the underlying share price to move sharply higher, then the call
warrant that is furthest “out of the money” will produce the highest return.


In the money warrants

A warrant that is “in the money” is more likely to track the underlying share price. These warrants are useful for the investor who wishes
to replicate the underlying share’s performance while committing significantly less capital. The gearing of “in the money” warrants is
significantly lower than that of “out of the money” warrants due to the lower risk associated with high delta options.


Gearing

Gearing is a measure of how many warrants can be bought for the same amount needed to buy the underlying share. Therefore if the
underlying share is R50 and the warrant costs R5.00, the warrant is said to have a gearing of 10.


Effective gearing

Effective gearing implies that though you may be able to buy 10 times as many warrants as shares, these warrants will not necessarily
move in line with the shares. Multiplying the gearing of this warrant by its delta gives us the effective gearing. Equity Derivatives provides
daily information relating to the effective gearing and deltas of all their warrants.


Time horizon

Investors need a clear idea of what the expected amplitude of the movement of the underlying will be and over what time horizon this
movement is expected to occur. These two factors are the most important in determining their choice of warrant.


         A warrant loses roughly two-thirds of its time value over the last third of its life

100%

  80%

  60%

  40%

  20%

   0%
                                           lifespace of the warrant


Fig 3 Time decay of a call warrant


Time decay

Warrants are a wasting asset. This means that the time component of the value of a warrant will decrease as the warrant approaches
its expiry date (provided the underlying share and other variables remain constant). Investors should note that time decay increases as
the warrant reaches expiry. The shorter the time to expiry, the less likely an out of the money warrant is to move into the money.


Underlying asset

The ability to make money on warrants will always depend on the behaviour of the underlying shares. Potential investors should seek
advice from their stockbroker or financial advisor as to the expected performance of the underlying share.




page 8
Basket warrants
A basket warrant uses a weighted average of the prices of a group of shares as the underlying. This provides an easy way of measuring
the performance of this group of shares, as many investors would like to take a view on the value of a particular sector (for example,
the financial stocks or a basket of the largest capitalised stocks). Investors can also use them to hedge a portfolio.

Basket warrants will allow the investor to trade the basket directly through a stockbroker. Unlike trading futures, there are no margin
calls for basket warrants. As the premium is paid upfront for the warrant, you can never lose more than the premium paid.


Call warrants

Basket call warrants allow investors to profit if the level of the basket rises. These warrants are cash settled against the closing level
of the basket on expiry. This means that, on exercise, the holder will receive cash for the amount, if any, by which the basket price
exceeds the exercise price. If the basket is below the exercise price on exercise, there will be no cash settlement amount.


Put warrants

Basket put warrants allow investors to profit if the level of the basket falls. On exercise, the holder of a basket put warrant will receive
cash for the amount by which the basket is below the exercise price. If the basket is above the exercise price, there will be no cash
settlement amount.


Hedging with basket warrants

Put warrants may be used to protect the value of a portfolio against an anticipated fall in value. Call warrants may be used to protect
against an increase in the market, while waiting for funds to become available or while making stock selections.


Trading basket warrants

Investors may buy and sell basket warrants to capitalise on movements in the underlying basket. Basket call warrants can be used to
take advantage of possible increases, while basket put warrants can be used for anticipated market falls.


Contact details
Investec Capital Markets, Equity Derivative Sales
Richard Swain
Telephone      (011) 286 4742
Email          warrants@investec.co.za
Web            www.investecwarrants.com

For further information log on to www.investecwarrants.com

A full product range of all Investec warrants is available on the above website, along with up to date daily matrices, which indicate
warrant prices for all movements in the price of underlying shares.

If you are interested in trading warrants or would like to know more about them, contact your independent financial adviser or broker.




                                                                                                                                        page 9
Glossary
American style warrants
Warrants that can be exercised at any time, up to and including the expiry date.

“In the money” warrants
When the share price of the underlying asset is above the strike price of the warrant in the case of call warrants or below in the case of
puts. In this case the warrants will have intrinsic value.

“Out of the money” warrants
When the share price of the underlying asset is below the strike price of the warrant in the case of call warrants or above in the case of
puts. These warrants will not have any intrinsic value and the price will consist only of time value.

Cover ratio
The number of warrants that must be exercised into one share or underlying asset.

Call warrant
A warrant giving the investor the right, but not the obligation, to buy the underlying share at the strike price, on expiry.

Delta
The delta of a warrant represents the relative change in the price of a warrant to the change in price of the underlying asset.

Effective gearing
Effective gearing measures the percentage price variation of a warrant for a 1% movement in the underlying asset. Effective gearing =
gearing x delta.

European style warrants
These warrants can only be exercised on the expiry date. Note: they can still be traded (bought and sold) up to and including this date.
Expiry date (exercise date)
The last date on which a warrant may be exercised.

Gearing
A measure of how many warrants can be bought for the price of the underlying asset. Gearing = underlying price / warrant price.

Intrinsic value
The amount by which a share price exceeds the strike price in the case of calls or the amount by which the strike price exceeds the
share price in the case of puts.

Put warrant
A warrant giving the investor the right, but not the obligation, to sell the underlying share at a pre-determined price.

Strike price
The pre-determined price at which the underlying asset can be bought (calls) or sold (puts).

Time value
The additional value of a warrant over its intrinsic value due to the remaining term of the warrant.

Volatility
A measure of the variation of a price over time, expressed in percentage terms.

Warrant
A securitised option issued by an institution or bank that is traded on a securities exchange.




page 10
Confidentiality
This communication is confidential and may not be disclosed to any third party without the written consent of Investec Bank Limited.

Disclaimer
Prospective purchasers of Investec warrants should ensure that they fully understand the nature of warrants and the extent of their exposure. Warrants are not suitable
investments for all investors.

Investec warrants are primarily exposed to the changes in the underlying share price. In addition, the warrants are exposed to changes in the expected volatility of the
underlying share price, interest rates, the time to expiry as well as the expected dividends of the underlying share.

Investec warrants are a leveraged investment. Like other leveraged share investments, they provide greater exposure to both increases and decreases in the
underlying share price than a direct investment in the underlying share. Potential investors should be aware that they may sustain a total loss of the purchase price of
the warrants (Including transaction costs).

Warrants represent general unsecured, unsubordinated, contractual obligations of the issuer and rank pari passu in all respects with each other. Purchasers are
reminded that the warrants constitute obligations of the issuer only and of no other person. Potential purchasers should understand that they are relying solely on the
creditworthiness of the issuer. Potential investors should be aware that they may sustain a total loss of the purchase price of the warrants (including any transaction
charges).

Clients should be fully aware of the risks involved in trading derivative products. The price and value of investments can fall as well as rise. Past performance of
investments may not be a reliable guide to future performance. A financial advisor should be consulted prior to entering into any investment. Investec and its affiliates
assume no responsibility or liability for any consequences arising from the trading of derivative products. Clients should be fully aware of the risks involved in trading
stock market related products. Investec Bank Limited does not make representation that the information provided is appropriate for use in all jurisdictions or by all
investors or other potential clients. Parties are therefore responsible for compliance with applicable local laws and regulations. All illustrations, forecasts or hypothetical
data are for illustrative purposes only and are not guaranteed.

This material is for your private information and we are not soliciting any action based upon it. Any terms contained are indicative only. Final terms and conditions
are subject to further negotiation. The information contained in this communication does not constitute an offer, advertisement or solicitation for investment, financial
or banking services. It is for informative purposes and not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or
regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The
material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such.
Investec Bank Limited accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this communication.

Capital Markets, a division of Investec Bank Limited. Reg. No. 1969/004763/06. An Authorised Financial Services Provider and registered Credit Provider. A member
of the Investec Group.

				
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