Guys, I was wondering what the difference btw a warrant and an ETF is?Lets take an example:i.e. lets look at an ETF that replicates GOLD, simple vanilla delta one...with the ETF you simply participate in the direction of the underlying.On the other hand, you have a warrant, zero strike call, also giving you the same performance on the underlying: GOLD.why would someone invest in an ETF or the warrant? what am I missing?For your guidance, I am not intending to discuss tracking errors or whatsoever, purely interested in the diff on ETFs vs Warrants.Tx for your input and guidance!Rgds

Warrants have the optionality element, whereas an ETF doesn't... That would be the main distinction that occurs to me.

QuoteOriginally posted by: MartinghoulWarrants have the optionality element, whereas an ETF doesn't... That would be the main distinction that occurs to me.except in this case its zero strike ... I don't think economically there is any difference between the two. However, there could be some subtle differences mainly because how they are traded. if the warrant is issued by one bank say and they are the designated market maker then you are beholden to them to get you out. theoretically you can short the underlying against the warrant but that is adding a degree of complexity to the problem that as a punter you probably don't want to deal with. ETFs on the other hand are exchange traded and may also trade away from intrinisc value - I am not an expert but I am sure you cannot get hold of the underlyign gold for example.

QuoteOriginally posted by: daveangelQuoteOriginally posted by: MartinghoulWarrants have the optionality element, whereas an ETF doesn't... That would be the main distinction that occurs to me.except in this case its zero strike ... I don't think economically there is any difference between the two. However, there could be some subtle differences mainly because how they are traded. if the warrant is issued by one bank say and they are the designated market maker then you are beholden to them to get you out. theoretically you can short the underlying against the warrant but that is adding a degree of complexity to the problem that as a punter you probably don't want to deal with. ETFs on the other hand are exchange traded and may also trade away from intrinisc value - I am not an expert but I am sure you cannot get hold of the underlyign gold for example.I thought the question was generally about warrants vs ETFs. As you point out, a special case of a warrant with a strike of 0 would be extremely similar to an ETF.

To be honest I'm not entirely sure but it might have something to to with counterparty risk. If your issuer of the warrant defaults you become a general creditor (e.g. Lehman '08), whereas the ETF is an investment vehicle (i.e. ring fenced) and should survive the default of the original issuer. If I'm wrong pls comment.

Whenever you see option with strike of zero or close to zero, it is probably somehow related to loopholes avoiding/delaying taxes or some regulatory requirements. Why else have such thing, as you have same economic value (less counterparty risk) as the vanilla.

Apart from certain cases as cigor mentions which we don't talk about in polite company I thought a warrant on equity at least dilutes the shares where as an option would not, but have never come across Warrants on GOLD.

QuoteOriginally posted by: rmaxApart from certain cases as cigor mentions which we don't talk about in polite company I thought a warrant on equity at least dilutes the shares where as an option would not, but have never come across Warrants on GOLD.there is only dilution if the warrant is issued by the company. 3rd party warrants do not cause dilution

DA thanks - learn a new thing everyday.