[caption id="attachment_1798" align="alignright" width="254" caption="Photo from SGDividends"][/caption]
We stumbled upon this advertisement in Singapore from a financial institution and thought what great marketing material it was.
What they wrote seem to imply that their hedging strategies are perfect ( second paragraph) and any gain to the warrant holders are taken from the losses of the warrant issuers' counter party whom they entered into positions with to hedge their warrant positions. Its not really right to state its a win-win situation between issuers and warrant holders since the issuers are still earning the premiums with no risk ( assuming perfect hedge) but risks still exists for the warrant holders who could still lose the premiums. Maybe this situation exists to " compensate" the warrant issuers for all the hardwork they have done to package such a derivative product.
And the truth of the matter is, in our opinion, its indeed a zero sum game since there is no such thing as a perfect hedge. When warrant holders win, warrant issuers still lose, although, the lost is just minimized. Read more...