Structured Warrants: How to Profit from Stocks Without Owning the Shares

Apr 30
5 min read

Structured Warrants (SW) in the capital market are securities issued by brokerage firms (securities companies) that grant the holder the right to buy (Call type) or sell (Put type) a specific underlying stock at a predetermined price and date.

Upon maturity, Structured Warrants are automatically settled via cash settlement. This means no physical shares are exchanged; instead, the investor receives the price difference in cash if the warrant is In The Money (ITM). Investors can also trade SWs on the secondary market up until three days (T-3) before the expiration date.

Fundamental Strategies for Structured Warrants

Buying Call Warrants in a Bullish Market → If you predict the underlying stock price will rise, buy a Call Warrant. The goal is to reach an ITM position where the Settlement Price is higher than the Exercise Price (Strike Price).

Buying Put Warrants in a Bearish Market → If you predict the underlying stock price will fall, buy a Put Warrant. The goal is to reach an ITM position where the Settlement Price is lower than the Exercise Price.

Monitor the Ticker Codes → Be careful! The ticker codes for Call and Put Warrants are very similar, differing only by one letter at the 7th position (C for Call or P for Put). Ensure you buy the one that aligns with your market analysis.

Understand the Risk Profile → As derivative products, Structured Warrants can multiply your gains through leverage, but the risks are significantly higher than regular stocks. While primarily designed for trading, if you intend to use them for long-term investment, choose a warrant whose underlying stock is in a strong long-term trend.

Beware of Time Decay → The value of a warrant decreases as it approaches its expiration date (especially within the last 30 days). This is known as Time Decay. The value can drop to zero if the warrant remains Out of The Money (OTM).

Prepare an Exit Plan → You are not required to hold a Structured Warrant until maturity. You can buy and sell them on the secondary market to take profits or cut losses. The issuing broker acts as a Liquidity Provider (LP), providing bid and offer quotes during trading hours to maintain fair pricing.

Structured Warrant Settlement Simulation

Suppose Investor A buys 100 lots of a Structured Warrant at 200 (Total investment: IDR 2,000,000) with the following specifications:

Ticker Codes: [ABCD] [XX] [C] [N] [6] [A] *

Type: Call Warrant

Underlying: Stock ABCD

Listing Date: July 17, 2025

Maturity Date: July 17, 2026

Exercise Price (X): 7,500

Ratio: 2:1

At maturity, the Settlement Price (S)—calculated from the average price of the underlying stock over the last 5 trading days—is 8,000. This is an ITM position because S > X.

* The SW ticker code consists of the underlying stock code, the issuing broker code, the letter C or P indicating a Call or Put, the international format code for the issuance month, the issuance year, and a unique identifier to distinguish warrants with similar specifications.

** The Settlement Price is calculated based on the average price of the underlying stock over the last 5 days prior to the SW's maturity date.

The settlement calculation:

= ( [S - X] ÷ Ratio ) × Lots

= ( [8,000 - 7,500] ÷ 2 ) × 100

= IDR 2,500,000

Result:

Settlement Proceeds = IDR 2,500,000

Initial Capital = IDR 2,000,000

Net Profit = IDR 500,000

Note: An ITM position (S > X for Call Warrants or S < X for Put Warrants) does not always guarantee a net profit; it depends on your initial purchase price and the conversion ratio. Conversely, At The Money or ATM (S = X) or OTM (S < X for Call Warrants or S > X for Put Warrants) positions result in no payout at maturity.

Key Factors Influencing Price

The price movement of a Structured Warrant is not only driven by the underlying stock price. Other factors, often referred to as "The Greeks" (such as Delta, Gamma, Theta, and Vega), play a crucial role in determining the warrant's fair value in the market.

Factor	Related Greek	Impact on the Call Warrant	Impact on the Put Warrant
Underlying Price	Delta (Δ), Gamma (Γ)	Positive	Negative
Exercise Price		Negative	Positive
Dividend		Negative	Positive
Underlying's Volatility (δ)	Vega (ν)	Positive	Positive
Interest Rate (Risk Free Rate)	Rho (ρ)	Positive	Negative
Expiration Date	Theta (θ)	Generally positive (as the maturity date approaches, the time value approaches zero)	Generally positive (as the maturity date approaches, the time value approaches zero)

P.s.: "Positive" means moving in the same direction (e.g., the higher the underlying stock price, the higher the value of a Call Warrant). "Negative" means moving in the opposite direction (e.g., the higher the underlying stock price, the lower the value of a Put Warrant).

What Are "The Greeks" in Structured Warrants?

"The Greeks" represent the specific sensitivity of a Structured Warrant (SW) price to various market factors. Here is a breakdown of the most commonly used Greeks in warrant calculations:

Delta (Δ)

Function: Measures the sensitivity of the Structured Warrant's price to changes in the price of the underlying asset.

Formula: (Change in SW Price × Ratio) ÷ Change in Underlying Price

Call Warrant: Maximum Value = 1, Minimum Value = 0

Put Warrant: Maximum Value = -1, Minimum Value = 0

2. Gamma (Γ)

Function: Measures the rate of change of Delta in response to changes in the underlying asset's price.

Basic Principles:

Gamma is highest when the warrant is At The Money (ATM) and decreases as it moves deeper In The Money (ITM) or Out of The Money (OTM).
Gamma is always positive for both Call and Put Warrants from the buyer's (investor's) perspective.
Gamma is highest for ATM warrants with a closer expiration date.

3. Theta (θ)

Function: Estimates the daily decline in the price or value of the SW as it approaches maturity (also known as time decay).

Basic Principles:

Theta is highest when the SW is ATM.
Theta is lower for ITM and OTM warrants.
Theta increases as the expiration date approaches, meaning the SW loses its time value faster closer to maturity.
Higher volatility can slow down the decay of the SW's value caused by Theta.

4. Vega (ν)

Function: Illustrates the sensitivity of the SW's price to changes in the underlying asset's volatility. The higher the underlying volatility, the higher the price of both Call and Put Warrants.

Basic Principles:

The higher the underlying volatility, the higher the Vega.
Vega is highest when the SW is ATM because, at this point, the SW's price heavily relies on volatility to move either ITM or OTM.
Vega decreases as the SW moves deep ITM or deep OTM.
Vega drops as the SW approaches maturity because price movements become more restricted closer to the expiration date.
An increase in underlying volatility will drive the SW price up, and vice versa.

5. Rho (ρ)

Function: Illustrates the sensitivity of the SW's price to changes in interest rates. A Call Warrant has a positive Rho, meaning its price increases when interest rates rise. A Put Warrant has a negative Rho, meaning its price decreases when interest rates rise.

Basic Principles:

Rho is higher for long-term warrants compared to short-term warrants.
The deeper ITM the warrant is, the higher the Rho will be.

Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).