Question on a warrant trade..

C

c.chugani

Hello ppl,

I would kindly like some advice on a particular trade I am planning on taking with warrants.

I am very much still a beginner in the option/warrant area, so I would like your help on how to get OUT of the trade profitably (since getting INTO a trade can be done by anyone.. lol).

There is an index trading at 14312 spot price.

I want to purchase a call warrant OTM with strike 14500 on March 16th 2007.

I will also be purchasing a put warrant OTM with strke 14000 on March 16th 2007.

My question is: what should be my approach? Should I see which warrant ends ITM before cutting losses on the other one? Should I hold the ITM warrant till expiry? If I sell the losing warrant before expiry, how can I add to my winning position with the money obtained?

If you need parameters as in delta, vega and theta, kindly let me know. Also please advise if my approach is appropriate, and if it is flawed- kindly provide me with a better alternative.

Finally, just to those who ask, I prefer trading with warrants as there is no margin account to be kept and because frankly I am a newbie in the trading biz. I rather start off by purchasing warrants based the spanish index (i live in spain) which are issued by Societe Generale (a reputable french investment bank).

Thanx for your help.

Regards,

Chirag
 
First of all, those warrants are just like buying the call and the put option. Can be that there are no comparable options listed but probably there are. I would advise to use the listed options as they tend to have tighter spreads and a lower price (Pricing of options is better in general as one can short options and one can not short warrants).

Then you should think of the whole construction. You are buying a strangle so you can determine where your break even is on expiration. I suggest you read and learn a lot more on option strategy's before entering in just a trade.

Enough to read here and on the net. Also suggest to read Natenberg.
 
I would suggest to exit with trailing stops, 30%-40% of the purchasing price. Seems to be a lot, but you should trade small positions, of course.
 
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