anagreementthatallowsaperson, usually someone who is already ashareholder, tobuyorsellaninvestmentthat isbasedonshares,bonds, etc. at afixedpricebefore afixeddate. Coveredwarrantsareboughtandsoldthroughfinancialinstitutionsthat already own theshares, etc.connectedwith thewarrantbefore theysellthem toinvestors.
They are limited liability instruments so there are no further payments or margin calls required to maintain acoveredwarrantposition.
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Covered warrants offer a flexible alternative to private investors who seek to gain the leverage benefits of derivatives, but who wish to limit their risk.
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These are also called covered warrants and are settled for cash, e.g. do not involve the company who issues the shares that underlie the warrant.
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Covered warrants have an average life of 6 to 12 months, although some have maturities of several years.
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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.
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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.
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