Local Index Warrant: Calculation of Settlement Price

The method of calculation of settlement price differs for stock warrants, index warrants and other types of warrants.


Local Index Warrants

The settlement level of an Index Warrant is the final settlement price of the index.



Settlement level of an Index Call Warrant:

Index Call Warrant = (Settlement Level - Strike Price) / Conversion Ratio

For example, the key terms of a XYZ Call Warrant are as below:

Underlying   XYZ Index (XYZ)
Warrant Type   Call
Strike Price  2,300
Maturity Date 29.12. 2016
Conversion Ratio 200

The settlement level of this warrant will be the final settlement price of the XYZ Dec 2016 Futures Contract on 29 Dec 2016.

If the settlement level of the XYZ is 2,500, then the settlement amount of this warrant will be:

= (2,500 - 2,300) / 200
= $ 1.00 per unit


Settlement level of an Index Put Warrant

Index Put Warrant = (Strike Price - Settlement Price) / Conversion Ratio

For example, the key terms of a XYZ Put Warrant are as below:

Underlying   XYZ Index (XYZ)
Warrant Type  Put
Strike Price  2,200
Maturity Date  29 Dec 2016
Conversion Ratio 200

The settlement level of this warrant will be the final settlement price of the XYZ Dec 2016 Futures Contract on 29 Dec 2016.

If the settlement level of the XYZ is 1,900, then the settlement amount of the above warrant will be:

= (2,200 - 1,900) / 200
= $ 1.50 per unit.