Glossary
Option
which can be exercised at any time during its life up until the
expiration
date.
The price for which an issuer (market maker)
or broker is willing to sell a warrant.
The owner of the warrant automatically receives the intrinsic value without
having to take any express action himself on the expiration date. (This may
be provided for in the contractual terms and conditions of the
warrant.)
One of the best known mathematical
models for calculating the value of a warrant
The minimum price which the underlying must reach so
that the buyer of a warrant does not suffer a loss. As of the expiration date of
a warrant, the break-even price for a call is equal to the strike price plus the warrant price; for a put it is equal to the strike
price minus the warrant price
A call gives the buyer of a warrant the right to
purchase, either at or until the expiration date, a certain quantity of a
particular underlying
for a pre-defined strike price . Most warrants provide for cash settlement
rather than actual delivery of the underlying. Exercising a call
only makes economic sense when the current price of the
underlying is above the strike price.
A cap is an upper limit on the
extent to which the owner of a call warrant
can participate in the difference between the strike price and the spot price of the underlying
The underlying asset is not actually
delivered to the owner of the option but rather he receives in cash the
difference between the strike price and the spot price of the underlying. Cash settlement is far more
comfortable and cost efficient for the owner of a warrant than actual delivery, as
he does not need to make payment of the purchase price for the
agreed quantity of the underlying (call) nor must he take delivery of the agreed
quantity of the underlying from the seller of the warrant (put.)
An electronic, off-exchange trading
system developed by Citibank. Banks connected to this system can
trade directly with Citibank via computer. The bank immediately
receives a confirmation, showing all details of the transaction,
which it can then pass on to its customer. Lengthy and risky time
delays, which are inevitable in exchange trading, do not occur
with this system
See Daily Closing
Equity warrant issued not by the corporation itself (i.e.
the corporation issuing the underlying equity) but by an issuing
house. The issuer covers his obligations under such warrants in
that he either holds rights to the delivery of the shares or has
actually already bought the shares. The equity capital of the
corporation remains unchanged when covered warrants are
exercised.
The last officially-determined price
(i.e. the last fixing) for a security during a day's trading on
an exchange. The daily closing of an underlying is often used for calculating the
amount of a cash
settlement.
Delta is the amount by which the
value of a warrant
changes when the price of the underlying changes by one unit, all other
factors remaining constant. For calls, the delta lies between 0 and 1; for puts
between 0 and -1. The minus sign results from the fact that the
value of a put warrant falls when the price of the underlying
rises. Expressed as a percentage (between 0% and 100%), delta
reflects the probability that the warrant will possess an
intrinsic value at the expiration date.
This is equal to leverage multiplied by delta. This figure represents the
percentage change in the price of a warrant arising from a percentage change in the underlying.
An option which can only be exercised at the end of
its life, i.e. on the expiration date
The owner of a warrant making use of the right embodied in
that warrant
The date on which the owner of a warrant exercises the right
embodied in the warrant. see: Expiration Date
The period span during which the option right can be
exercised. After the exercise period has expired the warrant is worthless.
see: Strike Price
A warrant with a non-standard structure, e.g.
unusual procedures for calculating or determining the strike price, the combining
of caps and floors, the use of a range, etc.
The date on which a warrant expires. Assuming that
the warrant has an intrinsic value, the option right should
be exercised at the latest on this date - otherwise it expires
and is worthless.
The theoretical value of a warrant can be determined using
option pricing models.
These models are partially based on somewhat bold assumptions.
Nevertheless, the "fair value" is often presented in financial
journals as an important criteria when making investment
decisions. if the price of a warrant is below its fair value the
warrant is considered to be under-valued, if it is above then it
is over-valued
See: spot price
A floor defines a lower limit on the
extent to which the owner of a put warrant
can participate in the difference between the strike price and the spot price of the underlying.
A forward transaction in the form of
a standardised contract which is traded on a futures
exchange
Gamma measures the change in delta
resulting from a change in the price of the underlying of one unit. Mathematically,
gamma is the second differential of the warrant price with respect to the price of
the underlying. the value of gamma is at a maximum when the strike price is at the
money
See: Elasticity
Eliminating risks emanating from a
position by entering into additional, off-setting
transactions
A measure of the historical
fluctuations in the price of a certain underlying. see: volatility
An estimate for future expected volatility. this is one
of the assumptions made by the seller of an option when calculating the price of a warrant
The strike price of a call warrant
is below (or that of a put
warrant is above) the spot price of the underlying.
The (positive) difference between
the spot price of the
underlying and the strike price of a call warrant (or, vice versa, the strike price and
the spot price of a put
warrant)
The party who issues a warrant and who must fulfil the
obligations embodied in the instrument.
The spot price of the underlying divided by the price of a warrant linked to that
underlying. leverage is intended to be a measurement of how much
more strongly an investment in warrants can rise and fall in
comparison to investing the same amount in the underlying asset.
This simplified leverage calculation is based on the incorrect
assumption that the value of the warrant and the value of the
underlying always move in parallel, i.e. by the same absolute
amount. Thus, a more refined leverage is calculated by
multiplying the simple leverage with delta. the result is often referred to as elasticity
See: exercise period
A market characterised by conditions
in which large-volume transactions in a financial instrument can
be executed without these then having a noticeable impact on the
market price of that instrument. For warrants, the current volume of trading is often
used as a measure of liquidity.
For warrants, the issuer should adopt the role of the "market maker"
who is obliged, at all times, to quote bid and offer prices for
the purchase and sale of warrants with as narrow a spread as feasible
See: Expiration Date
("Over The Counter") options which are not securitized. The terms and
conditions for OTC options are agreed individually between the
parties concerned.
A securities transaction is concluded
directly between two parties without involving an exchange
(bourse) as an intermediary. This means that the owner of the warrant can also profit from
price movements which occur outside of an exchange's trading
hours.
A contractual agreement between two parties
which grants the buyer the right (but not the obligation) to
receive (call) or deliver (put) a certain underlying asset
from (to) the seller (the "writer") at a pre-determined strike price on a certain date
or during a pre-defined period of time. The buyer acquires a
right, the writer assumes an obligation to deliver (call) or
receive (put) at the wish of the buyer. For this, the buyer pays
the writer the option price.
The price to be paid for buying a warrant. The price of a warrant is
influenced by many different factors. The most important are:
remaining life, interest rates, strike price, spot price, and volatility of the underlying.
See:option
The seller of an option is called the writer of the option. Whereas
the buyer has a discretionary right, the writer of an option has
an obligation to deliver at the request of the buyer.
The strike price of a call warrant is
above (or that of a put warrant
is below) the spot price
of the underlying.
Fulfilment of the rights and
obligations arising under a warrant by exchanging the underlying against payment of the strike price (as
opposed to cash
settlement).
The exchange ratio, i.e. the
quantity of the underlying to which one warrant relates. The point value varies
according to the underlying. Warrants for the U.S.-Dollar
normally relate to U.S.-$ 100. In contrast, XPI warrants only
refer to 1/100 of the XPI index.
The difference between the current
price of underlying
asset and the break-even price. The premium is
expressed as a percentage.
A put gives the buyer the right,
either at or up until a certain date, to sell a certain quantity
of a particular underlying for a pre- defined strike price. Most warrants specify cash settlement rather
than actual delivery of the underlying. Exercising a put only
makes economic sense when the current price of the underlying is
below the strike price.
A warrant , the owner of which receives a fixed
amount for each pre-defined date when the spot price of the underlying lies within a
certain range
The current market price for the underlying. The
officially determined mid-market price determined daily for
securities quoted on German exchanges is also referred to as the
"fixing price"
The margin between the bid price and offer price. the closer the
two prices are to each other, the better for the investor, as he
might make a profit more quickly
The price used for calculating the cash settlement
when a warrant is
exercised. For the actual delivery, it represents the price for
which the underlying
can be bought (call) or
sold (put). The strike
price is also called the exercise price.
See: exercise period
A measure of the change in value of
a warrant as the
remaining life to expiration reduces. Thus, theta is used to
mathematically represent the decay of a warrant's time value.
The amount by which the current warrant price exceeds the
intrinsic value
of the warrant. The higher the volatility for the underlying, the higher the time value of the
warrant (for a given remaining life to expiration). A buyer is
willing to pay more than just the intrinsic value for a warrant
as there exists the possibility that, up until expiration, the
intrinsic value will increase.
The financial asset to which a
warrant relates. This could
be e.g. an exchange rate, an equity index, shares or debt
instruments.
The date "as of" which an options transaction is
settled.
Measurement unit for the change in
value of a warrant
resulting from a change in volatility.
A statistical measure for the fluctuations in price of an
underlying,
expressed as an annualised value.
The stronger the fluctuations, the higher the volatility. If the
volatility of an underlying reduces, the warrant price reduces even if the spot price of the underlying
remains unchanged. see: Historical Volatility and
Implied
Volatility.
An option in the form of a security (a negotiable
instrument).
Disclaimer
The Financial Products referred to on this page are issued by Citigroup Global Markets Australia Pty Limited (ABN 64 003 114 832 and AFSL No. 240992, a Participant of the ASX Group and a Participant of the Sydney Futures Exchange Limited. This Site is provided for information purposes only and is not an offer, solicitation, recommendation or advice to buy or sell CitiWarrants®. While the information is based on sources believed to be reliable, we do not guarantee its accuracy and it may be incomplete or out of date. For complete and accurate information on CitiWarrants, refer to the relevant Product Disclosure Statement on this Site. Prices quoted may differ from the actual prices at which an investor may buy or sell a Warrant. Warrants can be traded on ASX and investors can obtain a copy of the Product Disclosure Statement by contacting a Citigroup Wealth Advisor Financial Consultant or the CitiWarrants Hotline on 1300 30 70 70. Investors may also apply for CitiWarrants under the Product Disclosure Statement. Warrants are not bank deposits or obligations of, or guaranteed by, Citibank, N.A., Citibank Pty Limited or any of its affiliates or subsidiaries and are subject to investment risks, including the possible loss of the principal amount invested. This information does not take into account the investment objectives or financial situation of any particular person. Investors should be aware that there are risks of investing and that prices both rise and fall. Investors should seek advice from a Financial Consultant based on their own circumstances before making a decision. Citigroup and the Umbrella Device logo are service marks of Citigroup Inc. or its affiliates used and registered throughout the world. © 2006 Citigroup Global Markets.