fr*gging warrants...

  1. 436 Posts.
    The land of Warrants is a magical place, where magical things happen.

    Let me get straight to the point - bought NCPWGR @ 0.16 when NCP was $11.30... next day, NCP was still $11.30, but NCPWGR (magical as it is) was down to 0.14 (!!!).

    Thought to myself, "hmmm...", and rang up SG Warrants to enquire what was going on. Nice lady explained that the "volatility" (a magical number, you see, which does magical things) had changed a few points, which explained why NCPWGR had behaved so magically in 24 hours even though its underlying hadn't budged.

    I asked why the "volatility" had changed - she consulted with SG's resident wizards and explained that a shift in the put/call ratio was behind this magical happening... which was all very well, except that no such thing happened to any other NCP warrant except SG's - ie, the "magic" in this case was all happening at SG Warrants...

    The next day, NCP went down to 11.15, and NCPWGR went back up to 0.16. Now, after a week (NCPWGR expires in August 2003), NCP is down to 11.00 (ie, -2.65%) and NCPWGR is - you guessed it - 0.16. What a magical land we live in (at least, where SG Warrants is concerned)!

    My point is this - I've been stuffing around with warrants for a couple of years now, and should have known better than to touch an SG warrant. Not all warrants are bad, some are fair, but only because their sponsors are trying to play fair - Macquarie warrants are about the best in my experience. But some market makers are cynical bastards, and do as much as they think they can get away with to tilt the advantage in their favour (ie, you lose). When they quote these magical numbers such as "volatility" etc etc to justify how their warrants change, as if some independent market-based parameter is forcing the changes, don't believe it for an instant - these "parameters" are arbitrary, they are set independently by the market makers themselves. Some market makers play fair, others don't.

    Logically, my advice is to avoid the ones that don't play fair like the plague.

    Again, in my experience, about the fairest market maker out there at the moment is Macquarie - I won't repeat who I think is the worst.


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