CFD, Options, Warrants, Forex, Shares, Products & Services, Psychology, Fundamental Analysis, Technical Analysis

For the investor who wants to diversify their portfolio, warrants provide an alternative way to be exposed to assets such as shares. On top of a new security, companies will often issue warrants as an added attraction for buyers.

What are Warrants?

Investors spend hours of their time deciding which stock to buy. Everybody wants to profit, and stocks giving good returns are the target. As opposed to trading individual stocks, trading ETFs (Exchange Traded Fund) allows you to invest in a wide range of shares and gives you a gestalt picture of the Australian sharemarket. Think of ETFs as trading the market in one trade.

To learn more about your ETF, you can go to the ASX and the ETF issuer website where you will find distribution, market prices (ASX prices are delayed by at least 20 minutes) and company details and announcements.

Net Asset Value

Net asset value (NAV) is the ETF's per-share value. NAV is calculated by dividing the total value of all securities in its portfolio, less any liabilities, by the number of fund shares outstanding. You can find the NAV in the issuer's website and under the Company Announcement section of the ASX website.

It's important to get a good grasp of the sharemarket index before getting into the details of domestic ETFs. Domestic ETFs ride on the back of the sharemarket index. What is a sharemarket index? A sharemarket index is a measure of the performance of a group of stocks as opposed to one stock alone. The S&P/ASX 200 and All Ordinaries indices, for example, are whole market measures while the S&P/ASX 200 Utilities index is a sector measure.

International ETFs, as the name implies, allows the investor exposure to global sharemarkets. There are several reasons why investors buy international ETFs. First, the Australian market represents only a tiny chunk of the entire world's market capitalisation. Investing in international ETFs means exposure to the big kahunas of the overseas market like Berkshire Hathaway and Microsoft.

Investing in international ETFs is also much simpler than investing in individual overseas stocks. You buy these ETFs using foreign currency and you receive distributions also in foreign currency.

Exchange Traded Commodities are like ETFs, but ETCs give the investor exposure to precious metals such as gold and silver or a combination of precious metals. Instead of buying actual gold for example, you buy an ETC that tracks gold.

Since the underlying asset is precious metals, distributions are not paid for ETCs. Returns come in the form of capital growth. This is how it works: You get a metal entitlement and a metal share when you buy an ETC. The share is merely an instrument for trading; it's the entitlement that gives value to your ETC.

• ETC exposes investors to commodities without having to buy the commodities directly. Examples of ETCs traded on the ASX are over gold and silver.
• The ETC tracks the spot price of the underlying metal.
• ETC price depends on the price of the underlying metal and the AUD-USD exchange rate.
• ETC trading hours are the same as ASX regular trading hours.
• Metal ETCs is composed of a metal share and a metal entitlement. The value of the ETC lies in the entitlement.

Price is important in any transaction. It will determine if you have made enough money or exited at a loss. So it's important that you that find out if the price of the option is fair or not. This is calculated through an option pricing model, which provides a theoretical value for an option based on the variables that affect its price. Some variables can be calculated but others are based on the trader's assumptions.

Time value is one of the most important components in options trading. Options have an expiry date, so the value of an option depends on the time it has left. It's a speculative form of trading with a wasting asset, but with enough research to know what determines the value of an option, you will get an insight in how you can make the most out of your options trading. We will look into the factors that affect an option's time value, which is an integral part of options trading.

Expiry Date

Much has been said about trading options, especially its advantages and pitfalls. Some don't mind jumping in armed with their own research, confident that the market will move in their favour. Others prefer to step away leave the speculations to the risk takers. One of its most talked about features is it enables traders to earn in bullish, bearish and even neutral market conditions. More importantly it provides opportunities to earn big returns at a fraction of the cost of the underlying shares. We are going to look into what influences the price of an option.