The sensitivity of warrants to the underlying asset may vary greatly depending on the time to maturity or the delta of the warrant. On the other hand, the speed at which warrants react to the underlying asset also varies over time. While investors are sometimes attracted by the low price and high leverage of warrants, short-term warrants may cause losses to investors due to high time depreciation, especially if the strike price is far away from the spot price. Therefore, warrants with relatively long maturities and strike prices close to the spot price offer a more balanced risk/return profile. Within this framework, warrants can be categorized into different risk groups based on days to maturity and delta parameters.
This group includes loss warrants with less than 15 days to maturity or with a delta value of less than 10%. These are relatively inexpensive warrants as the probability of a loss warrant of this type turning into a breakeven and/or value warrant within the short remaining time is lower. However, investors should be aware that this possibility may be realized in the event that the market is very volatile and/or there is a very strong movement in one direction during the remaining maturity period, and therefore, they should be classified as high-risk and investment preferences should be made accordingly.
Loss warrants with 15 days or more to maturity and delta values between 10% and 30% are included in this group. Investors who have an expectation of a certain direction in the market and believe that this expectation will be realized in a shorter period of time may prefer warrants in this group. They have relatively high leverage and are suitable for investors who intend to trade intraday and/or short-term.
This group includes warrants with 15 days or more to maturity and delta values between 30% and 60%, which are at a slight loss, breakeven or slight profit. This warrant group should be preferred by investors who want to invest in line with market expectations.
This group includes warrants with 15 or more days to maturity and a delta value between 60% and 100%. Due to these characteristics, their prices are high while their leverage is low. It is suitable for investors who want to invest in warrants with low risk.
