A Covered Warrant (CW) will have different types of prices, each with its meaning. Therefore, investors need to differentiate between the prices in a CW as follows:
1. Exercise price (also known as strike price): This is the price at which investors owning CW have the right to buy/sell the underlying securities from the CW issuer when the CW expires. It serves as a benchmark for investors to determine the status and profit/loss level when investing in CW. The issuing organisation will announce this price when offering CW. Typically, the exercise price will remain fixed throughout the CW's term and only be adjusted in some cases of corporate events affecting the underlying securities.
2. Settlement price: The Stock Exchange determines and announces this price before the CW's expiration date. The difference between the settlement price and the exercise price indicates the investor's profit/loss at the CW's expiration, and it is also the basis for the issuing organization to execute the payment of the price difference when investors exercise their rights.
3. Covered Warrant price (also known as the price of a CW): is the cost that investors must incur to own a CW. At the time of issuance, the CW price is the offering price set by the issuing organization. When CW are listed and traded on the Stock Exchange, the warrant price is the market trading price of the CW.
