Investing in Warrants

A warrant is a tradable security issued by a financial institution for a specified term that grants the holder the right, but not the obligation, upon payment of a premium, to buy (call warrant) or sell (put warrant) a specific quantity of an underlying asset at a predetermined price, either throughout the life of the warrant or at maturity, depending on its exercise style.

This definition includes several key concepts, explained below:

• Specified Term: Refers to the warrant’s expiration date, which is the date after which the warrant ceases to exist. The expiration date may or may not coincide with the last trading day of the warrant on the Spanish Stock Exchange Interconnection System (SIBE).
• Warrant Price: Also known as the premium, this is the market price at which the warrant is bought and sold on the exchange. The premium is closely linked to fluctuations in the price of the underlying asset.
• Call Warrant: A purchase warrant that gives the holder the right to buy the underlying asset.
• Put Warrant: A sale warrant that gives the holder the right to sell the underlying asset.
• Ratio: The number of units of the underlying asset that one warrant entitles the holder to buy (call) or sell (put).
• Exercise Price: Also known as the strike price, this is the price set by the issuer at which the holder has the right to buy (call) or sell (put) the underlying asset upon exercising the warrant. Exercising a warrant is the act by which the holder uses this right, giving up ownership of the warrant in exchange for acquiring the underlying asset (call warrant) or disposing of it (put warrant).
• Style: A warrant may be either American-style or European-style. An American-style warrant can be exercised at any time during its life. In contrast, a European-style warrant may only be exercised on its designated exercise date, typically at expiration.

• Real-time continuous trading on the Spanish Stock Exchange from 9:00 a.m. to 5:00 p.m.
• Access to a wide range of underlying assets, including equities, commodities, currencies, and more.
• Liquidity support provided by a Market Maker, which offers both bid and ask quotes throughout the trading session.
• Transparency in trading, backed by the strict supervisory and monitoring standards of Sociedad de Bolsas.
• They enable investors to implement a variety of investment strategies.​‌

Turbo Warrants are warrants that include the possibility of early expiration before the maturity date specified in the terms and conditions of the issue. This early expiration feature is determined by the establishment of a barrier level. When the price of the underlying asset reaches the barrier level, the Turbo expires prematurely.

For Turbo Calls, early expiration occurs if the level of the underlying asset is less than or equal to the barrier specified in the issue conditions.

For Turbo Puts, early expiration occurs if the level of the underlying asset is greater than or equal to the barrier specified in the issue conditions.

When either of these conditions is met, the Turbo expires early, becomes worthless, and is delisted from trading.

As a result, Turbos are characterized by high leverage, which is reflected in the premium (or price) of the Turbo. In addition, their price performance is driven primarily by movements in the price of the underlying asset, rather than by changes in volatility or the time remaining until expiration.

Within this product category, there are also instruments known as Turbo Pros. Turbo Pros incorporate two barriers that define an activation range. Consequently, a Turbo Pro remains inactive in the market until the underlying asset trades within that specified range. Once activated, a Turbo Pro operates in the same way as a standard Turbo.

Multi Warrants are suitable for investors who have a specific short-term view on the price performance of an underlying asset. Investors can use these products to benefit from intraday price movements or to follow short-term market trends with constant leverage. Multi Warrants allow investors to participate in both upward price movements (long strategy) and downward price movements (short strategy) of the underlying asset. However, investors should be aware that leverage works in both directions and may result in a total loss of the investment.

Multi Warrants have no fixed maturity date, meaning investors must sell the warrants or exercise their rights in order to realize their economic value. The amount received by the holder of a perpetual Multi Warrant upon exercise or sale depends on its current net asset value on the relevant valuation date.

Bonus Warrants are investment products that provide the return generated by their underlying asset and, provided that the underlying asset remains above a specified lower barrier throughout the life of the product, the issuer also guarantees a minimum redemption value, hence the term “Bonus.” If the underlying asset reaches the lower barrier, the guarantee of the minimum redemption value is deactivated, although the product remains active and continues to trade in the market.

Within this category, there are also products known as Bonus Caps. Their distinguishing feature is that they include a maximum limit on the potential return of the product, which corresponds to the Bonus level, regardless of whether the minimum redemption guarantee remains active at maturity.

Inline Warrants are investment products that entitle the holder to receive a fixed payout at maturity, provided that the underlying asset remains within a predefined range, bounded by an upper and a lower barrier.

Inline Warrants feature both an upper barrier and a lower barrier, between which the underlying asset must trade. If, at any time during the life of the product, the underlying asset reaches either barrier, the warrant will expire early without value and will be delisted from trading.

Discount Warrants are investment products characterized by offering a maximum potential return, calculated as the difference between the specified upper level and lower level. They may be structured as either bullish products (Discount Calls) or bearish products (Discount Puts).

Discount Calls provide the maximum return if, at maturity, the level of the underlying asset is equal to or higher than the upper level, or if the underlying asset has remained above the lower level throughout the life of the product. If the underlying asset reaches the lower level, the product remains active and continues to trade in the market, but it will no longer offer the maximum return unless the first of the above conditions is met. If, at maturity, the underlying asset is below the lower level, the value of the Discount Warrant will be zero.

Discount Puts operate in a similar manner, but in the opposite direction, benefiting from downward movements in the underlying asset.

StayHigh and StayLow are exchange-traded products that entitle the holder to receive a fixed payout at maturity, provided that the underlying asset does not touch the product’s barrier level during its lifetime.

The barrier may be set either below or above the current market price, depending on whether the investor expects the underlying asset to remain above or below a specified barrier level throughout the investment period.

• StayHigh products are designed for investors who expect the underlying asset to remain above the barrier level.
• StayLow products are designed for investors who expect the underlying asset to remain below the barrier level.

If the underlying asset touches the barrier at any time during the life of the product, the product loses its entitlement to the fixed payout.

Certificates entitle the holder to receive, from the issuer on the settlement date, a specified amount based on the certificate’s nominal value and the performance of the underlying asset.

The final return of a certificate therefore depends on both the investment strategy embedded in the certificate and the performance of the underlying asset.