Covered Warrant

Leveraged buyout - Characteristics 1 As a rule of thumb, senior debt usually has interest margins of 3–5% (on top of Libor or Euribor) and needs to be paid back over a period of 5–7 years, junior debt has margins of 7–16%, and needs to be paid back in one payment (as bullet) after 7–10 years. Junior debt often additionally has covered warrant|warrants and its interest is often all or partly of Payment in kind loan|PIK nature.

Warrant (finance) - Types of warrants 1 * Covered warrants: A covered warrants is a warrant that has some underlying backing, for example the issuer will purchase the stock beforehand or will use other instruments to cover the option.

Warrant (finance) - Naked 1 Covered warrants normally trade alongside equities, which makes them easier for retail investors to buy and sell them.

Warrant - Finance 1 * Covered warrant, a warrant issued without an accompanying bond or equity

Covered warrant 1 In finance a 'covered warrant' (sometimes called 'naked warrant') is a type of Warrant (finance)|warrant that has been issued without an accompanying Bond (finance)|bond or Equity (finance)|equity. Like a normal warrant, it allows the holder to buy or sell a specific amount of equities, currency, or other financial instruments from the issuer at a specified price at a predetermined date.

Covered warrant 1 Unlike normal warrants, they are usually issued by financial institutions instead of share-issuing companies and are listed as fully tradable Security (finance)|securities on a number of stock exchanges. They can also have a variety of underlying instruments, not just equities, and may allow the holder to buy or sell the underlying asset. These attributes make it possible to use covered warrants as a tool to speculate on financial markets.

Covered warrant - Structure and features 1 Covered warrants offer a flexible alternative to private investors who seek to gain the Leverage (finance)|leverage benefits of Derivative (finance)|derivatives, but who wish to limit their risk.

Covered warrant - Structure and features 1 When the issuer sells a warrant to an investor, they typically cover (or Hedge (finance)|hedge) their exposure by buying the underlying instrument in the market. Covered warrants have an average life of 6 to 12 months, although some have Maturity (finance)|maturities of several years.

Covered warrant - Structure and features 1 In contrast to traditional equity warrants, with covered warrants no new issuance of common stock occurs if the warrant is exercised. The underlying shares of common stock are usually either owned by the issuer of the covered warrants or the issuer has a mechanism, such as owning equity warrants for the underlying shares, through which they can obtain the shares.

Covered warrant - Structure and features 1 Covered warrants are very popular due to the following qualities:

Covered warrant - Comparison with options 1 Covered warrants are very similar to Options (finance)|options—much more so than traditional warrants. This is because covered warrants, just like options, can be created to allow holders to benefit from either rising prices or falling prices, by having both put and call warrants. They can also be created on a wide variety of underlying instruments not just equities and there are fairly standardised and are mostly traded on exchanges.

Covered warrant - Risks 1 With covered warrants the maximum loss is limited to the price paid for the warrant (ask or offer price) plus any commission or other transaction charges.RBS Guide to Covered Warrants Thus, although warrants are classed as high risk they are not as risky as other investment products such as Contract for difference|contracts for differences or spread betting in which an investor would have to pay for future losses.

Borsa Italiana - Structure 1 The stock market is divided into five parts: 1) The electronic share market (MTA) trades Italian share (finance)|shares, convertible bonds, and warrant (finance)|warrants; the Covered warrant|covered-warrant market is an electronic share market

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