The “Greeks” are sensitivity indicators that measure the impact of various influencing factors on the price of a warrant. Those who understand these indicators and use them in a targeted manner can not only manage risks better, but also develop strategies to profit from different market situations. <\/p>\n\n
One of the most important “Greeks” is the Del-ta. It measures the change in the price of a warrant in relation to the change in the price of the underlying. A delta of 0.5, for example, means that a call warrant gains CHF 0.5 if the price of the underlying rises by CHF 1. Investors who expect a strong directional movement in the underlying can profit from this with warrants with a high delta. Such securities react more strongly to price changes than warrants with a lower delta. The following rules of thumb apply: The further a warrant is quoted out of the money, the lower its delta. The lower the delta, the less the warrant reacts to changes in the underlying. For warrants that are at the money, the delta is around 0.5 (calls) or -0.5 (puts). The further a warrant moves in the money, the higher the delta, until it approaches the maximum value of 1 for calls or -1 for puts. A high delta is useful for warrants if investors are looking for a strong link to the underlying and want to react quickly to expected market movements upwards (calls) or downwards (puts). The catch is that warrants that are quoted low in the money and therefore have a high delta are more expensive than warrants that are at or out of the money due to their high intrinsic value. <\/p>\n\n
Another high-delta strategy is called “cash extraction”. The idea behind this is that call warrants with a delta close to 1 can be used as a substitute for a direct investment in the underlying asset under certain conditions. This is because while the warrant and the underlying perform almost identically, less capital has to be invested in the warrant due to the leverage. The funds saved in this way can be used for other investments. <\/p>\n\n
Although the delta is one of the most important “Greeks”, the role of the gamma must also be taken into account when trading warrants. This is because it describes how much the delta of a warrant changes when the underlying rises or falls by one unit. A gamma of 0.02 with a delta of 0.7 therefore means that the delta rises to 0.72 or falls to 0.68 if the price of the underlying rises or falls by CHF 1. The gamma is useful for traders, as this figure can be used to estimate the extent to which a warrant will build up additional leverage at the current time if the underlying (continues to) move in the desired direction. As practice shows, short-dated, at-the-money warrants exhibit the most rapid delta changes and therefore the highest gamma values. Such securities are suitable for traders who expect a strong price movement of the underlying in the desired direction within one or a few days. <\/p>\n\n
The vega indicates how strongly a warrant reacts to changes in the implied volatility of the underlying. All other things being equal, rising implied volatility has a positive effect on the time value and thus on the price of the warrant – and vice versa. This applies to both calls and puts. In principle, warrants quoted at the money have the highest time value and therefore also the highest vega. Practice shows that implied volatility always skyrockets when there are sudden price corrections or market slumps. This is because such shocks are usually sudden and are often associated with high fluctuations. <\/p>\n\n
The above-mentioned points result in a particularly exciting trading opportunity for investors who wish to profit from such sudden price losses with put warrants. Here is an example: An investor expects that a company’s quarterly figures will be below expectations and that the share, which is currently trading at CHF 100, will consequently come under pressure. Shortly before reporting, he therefore buys an at-the-money put warrant on the share with a remaining term of twelve months and a subscription ratio of 1:1. With an implied volatility of 15% of the share at the time of purchase of the warrant, the Black-Scholes option pricing model results in a fair value per put of CHF 5.98*. The vega of the warrant is a high 0.40. Let us assume that the investor’s expectations are realized and the share plummets by 5% to CHF 95 after the presentation of poor quarterly figures, while its implied volatility shoots up to 40%. In this case, the fair value of the put would have risen to CHF 18.08. This price results on the one hand from the build-up of an intrinsic value of CHF 5 and on the other hand from the increase in the time value from CHF 5.98 to CHF 13.08. In this scenario, the investor has therefore benefited twice – from the price losses of the underlying and from the increase in volatility. The calculation does not take into account the time value loss, which is manageable with a holding period of a few days. <\/p>\n\n
It is important to know that the “Greeks” change over time. But if you have them under control, and this is only possible with practice, you can not only anticipate market movements, but also adapt your positions optimally to your own risk appetite and the market environment. Sample portfolios for experimentation and trial and error can be a valuable aid for beginners. <\/p>\n","protected":false},"excerpt":{"rendered":"
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