Barron's Online - The Striking Price
Lehman Brothers is offering a warrant that is like a call option that expires in May 2007. The article gets into some of the differences between calls and warrants. But basically these warrants go up in value if the Nikkei goes up. Warrant holders will break even, the article says when the Nikkei rallies almost 10% above the current level of 11,192.17.
There are a couple of things to keep in mind. One is that Lehman isn't selling these because they think the Nikkei is going to 14,000 and they want to take a huge loss.
iShares Japan (EWJ) won't be worthless if the Nikkei goes up 8% between now and May 2007 but the warrants would be.
Lastly warrants are not funds. Warrants succeed or fail based on a specific outcome. I write a lot about new products to invest in (although warrants aren't new). For all I know these could turn out to be a great buy but there are risks and these are the ones I can think of at first read.
Wikinvest Wire
2 comments:
I don't think your read on these is correct when you say that if the Nikkei rallies 8% your warrants will be worthless. As I read this thing, it looks to me like the warrants will have "some" value as long as the Nikkei is above the level it was at the day the warrants were issued. Granted, their value will be seriously diminished unless there is a rally of @ 10%, but the warrants won't be completely worthless unless the Nikkei heads down from here.
On the other hand, if the Nikkei does stage a rally of 25% or so to around 14000, the warrants will have appreciated about 50% in value. On the other other hand, if the Nikkei drops by 50%, the holder of the warrants will have lost some fraction of what a holder of EWJ with comparable upside exposure would lose.
Otherwise you're spot on. These things ain't ETF's as they could easily be confused for if one doesn't read the prospectus. With all the different products out there, I hope they make it obvious somehow.
I thought I read the aeticle to say they are way out of the money right now, maybe I misunderstood. In general, warrants are either in the money or out of the money. If out of the money at expiration they would be worthless. Apologies if i got the specific numbers wrong for this one.
Post a Comment