Tuesday, 23 September 2008

Warrants trading

It was a dramatic last week with the failure of Lehman Brothers and possibly AIG but i finally picked up the "courage" to trade warrants last week. I bought STI2500BNPeCW081230 on Thursday at 19 cents and sold them on Monday at 29 cents and followed with a second trade by buying STI2500BNPePW081127 at 25 cents and selling off at 30 cents today. As this is my first few trades in warrants and i wanted to 'test' the market makers (after hearing so many horror stories about them) so i didnt buy much, only 30 lots for each trade.

The advantages of trading warrants is that i know from the onside the 'maximum' loss which i will suffer if i am wrong but i can enjoy some leverage if i am right. Whereas in futures trading, my losses can be unlimited and i may not be able to ride out the volatility in such market conditions. The experience with BNP has been good as i choose very high volume warrants that are slightly in/out of the money. In addition, i am actually a very short term trader so warrants will suit me just fine as i will not have to suffer too much "time decay". I do know of many who have been badly burnt by trading warrants, hence i am always very skeptical and wary of this trading instrument.

Let's see how this warrant trading adventure will go on but i guess i will stick to trading index warrants like HSI and STI warrants for now.

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