When we talk about American-type warrants (executable at any time and the majority in the Spanish market), there are two ways to unwind positions: by selling them on the secondary market or by exercising them. The difference between the two options is clear: the first allows you to collect both the intrinsic value and the time value; while the second only includes the intrinsic value.
This difference justifies the fact that, if the investor wishes to unwind positions during the life of the Warrant, when there is still time before its expiration, they should opt to sell it on the Market, a market in which, moreover, the issuer always guarantees liquidity at the theoretical price of the Warrant.
When there is little time left before expiration, both options are practically the same, as the time value is almost negligible. However, investors who wish to invest until maturity should consider the settlement procedure for each issue and, consequently, the last trading day for those warrants.
The method for settling warrants is always the same: there is never physical delivery of the security; instead, the positive difference (intrinsic value) is received in cash. The settlement amount is therefore determined by the following formula:
However, there are different ways to establish the Liquidation Price, predetermined in the offering prospectus, all with the same objective: to set target prices easily recognizable by individual investors. Among these methods, the most common are the following:
1. Opening prices of the underlying reference assets on their respective stock exchange on the maturity date, as is the case of SG issues on Spanish shares with a maturity date of 20/12/2002.
2. Closing prices of the underlying asset on the maturity date, as is the case of the latest SG issue on the Nasdaq-100 Index.
3. Average of the Opening Prices of the underlying assets over a specified number of days. Thus, in the issuance of SG on Spanish shares maturing on 22/02/2002, the Settlement Price was taken as the average of the Opening Prices of the maturity date and the four days prior to it.
4. Futures Expiration Price, as performed in the SG issue on the Ibex-35 with expiration 15/02/2002.
It follows from the above that the last trading days on the Secondary Market in the cases described would be those business days prior to the day or the first day on which data that determines the settlement price begins to be taken into account. Thus, it would be the fifth business day prior to expiration in case 3, and the day before expiration in the remaining cases.
In any case, both the issuers and the Official Body in which the emissions are registered, offer extensive information that allows consultation on a case-by-case basis.
Any questions about this news?
Talk to Coexia, the AI of the foreign trade
