Spread Warrant — Bull
A call warrant with its gains capped, which makes it cheaper and less sensitive to volatility.
Payoff at maturity
Move the parameters; the product formula and its building blocks are recomputed from the same engine that is tested against the workbook.
- Product
Value 0 %
Per 10'000 of nominal
| Underlying at maturity | Level | Value | Amount | Gain / loss |
|---|---|---|---|---|
| −30 % | 70 % | 0 % | 0 | −10'000 |
| unchanged | 100 % | 0 % | 0 | −10'000 |
| +30 % | 130 % | 20 % | 2'000 | −8'000 |
For leverage products the nominal stands for the initial underlying level; the amount is the value of a position that controlled 10,000 of underlying at the start. Premium, financing and time value are not included.
Data table and formulas
Spread Warrant - Bull (2110): value per unit at maturity for an underlying at 0 % → 0 %; 100 % → 0 %; 120 % → 20 %; 200 % → 20 % of its initial level.
| Series | Formula | 0 % | 25 % | 50 % | 75 % | 100 % | 125 % | 150 % | 175 % | 200 % |
|---|---|---|---|---|---|---|---|---|---|---|
| Long Call - ATM | 1 × max(S − strike, 0) | 0 | 0 | 0 | 0 | 0 | 25 | 50 | 75 | 100 |
| Short Call - OTM | −(1 × max(S − cap, 0)) | 0 | 0 | 0 | 0 | 0 | -5 | -30 | -55 | -80 |
| Product | min(max(S − strike, 0), cap − strike) | 0 | 0 | 0 | 0 | 0 | 20 | 20 | 20 | 20 |
Largest difference between the sum of the blocks and the product formula over the grid: 0.0e+0.
How it is built
Each block drawn on its own, then added. The last chart is the sum, and it is identical to the product line above.
- Long Call - ATM1 × max(S − strike, 0)
- Short Call - OTM−(1 × max(S − cap, 0))
- Productmin(max(S − strike, 0), cap − strike)
Largest gap between the sum of the blocks and the product formula on this grid: 0.0e+0. The same identity is tested for every product and scenario in the site's test suite.
Construction, as listed in the workbook
- Long Call - ATM
- Short Call - OTM (strike = Cap)
In plain English
A call bought at the strike and a call sold at the cap. The sold call reduces the premium and limits the maximum payoff to cap minus strike. Between strike and cap the spread behaves like a call; above the cap it is flat.
Because one option is bought and one sold, the effects of volatility and time decay partly cancel. The spread is the cheaper way to express a moderate view.
Chances and risks
Chances
- Cheaper entry than a plain warrant.
- Less exposed to volatility and time decay.
Risks
- Gains stop at the cap.
- Total loss below the strike.
- Issuer credit risk.
Who it fits
- Investors with a moderate, time-limited positive view.
Who it does not fit
- Investors expecting a sharp rally.
Nearby on the map
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