What Is a Warrant?

A warrant is a tradable security issued by an institution for a time period that gives the right (and not the obligation) by paying a price to buy (call warrant) or to sell (put warrant) a specific amount of an asset (underlying asset) at a specified price (strike) over the duration of its life or on its expiry date depending on its style.

• Time period (maturity): the expiry date is when the warrant ceases to exist. It may or may not match the last trading day in the Stock Exchange Interconnection System.

• Warrant price (premium): the market price at which trades are executed. The premium is closely tied to the underlying asset’s performance.

• Call warrant: gives the right to buy the underlying asset.

• Put warrant: gives the right to sell the underlying asset.

• Ratio: indicates how many units of the underlying asset one warrant entitles you to buy (call) or sell (put).

• Strike price: the price set by the issuer at which the underlying can be bought (call) or sold (put) when exercising the warrant.

• Exercise: the act of using the right granted by the warrant by exchanging ownership of the warrant for the underlying asset.

• Style:
  • American: can be exercised at any time before expiry.
  • European: can only be exercised on the expiry date.

• Traded on the Spanish Stock Exchange in real time, continuously from 9:00 to 17:00.

• Provide access to a wide range of assets (equities, commodities, currencies, etc.).

• Liquidity is ensured by a market maker, who provides continuous buy and sell quotes.

• High transparency, subject to the strict oversight of Sociedad de Bolsas. 

• Allow investors to implement a variety of investment strategies.

There are different types of warrants designed to suit various investment strategies. Some of the most common types of warrants include the following:

Plain Vanilla Warrants are exchange-traded financial products that grant the investor the right—but not the obligation— to buy (Warrant Call) or sell (Warrant Put) an underlying asset (such as a stock, index, or commodity) at a price fixed in advance (exercise price or strike), on a determined future date (maturity). They do not involve the purchase of the actual asset but rather replicate its behavior in a leveraged manner: with a small investment, the investor can participate in the underlying's performance. This means that warrants allow for the amplification of gains, but also losses, since if the market does not move favorably for the investor, the product can lose all its value.

One of the main characteristics of warrants is that their price does not depend solely on the underlying's movement but also on factors such as the time to maturity, implied volatility, interest rates, and expected dividends.

Turbos are exchange-traded products that allow investors to gain leveraged exposure to the performance of an underlying asset, such as a stock, index, commodity, or currency. They are designed to amplify both gains and losses with respect to the underlying's movement. Unlike Plain Vanilla Warrants, whose price also depends on factors like volatility and time to maturity (making them harder to value), Turbos have a more transparent structure: their price is based primarily on the difference between the underlying asset's value and the financing level or strike, which allows their performance to be tracked more directly and understandably. Contrary to Multis, Turbos do not have a daily compounding effect, which allows them to be held over a broader time horizon.

A Turbo's leverage is derived from the difference between the underlying price and the financing level (exercise price or strike), which allows investors to control a large position with a small outlay.

A key feature of Turbos is the existence of a knock-out level or barrier which, if reached or breached during the product's life, causes the Turbo's automatic liquidation and the total or partial loss of the capital invested. There are Long Turbos (which benefit from underlying rises) and Short Turbos (which benefit from falls), so they can be used for both directional and hedging strategies.

The Turbo Pro is an advanced modality of Turbo Warrants that incorporates a double activation barrier, making it a particularly sophisticated product within the Turbo universe. Unlike a standard Turbo which is active from the start, the Turbo Pro remains inactive in the market until the underlying crosses one of the two predefined activation levels (upper or lower barrier). Once activated, the product begins to behave like a traditional Long or Short Turbo, with associated leverage and knock-out risk. This double barrier allows the investor to position themselves in advance to enter the market only if a specific technical or price scenario is reached, which can be useful in range-breakout strategies or high-volatility events. 

Multis are exchange-traded products designed to replicate the performance of an underlying asset with constant daily leverage, which allows both gains and losses to be amplified compared to the underlying's performance. Unlike other structured products, Multis do not have a maturity date, nor do they have barriers or knock-out levels: their behavior is based solely on the underlying asset's daily performance multiplied by a fixed leverage factor (e.g., x3, x5, or even x10). This leverage can be bullish (Multi Long) or bearish (Multi Short), allowing investors to position themselves in both market directions.

The functioning of Multis is based on the daily compounding effect: each day, the product's price is recalculated based on the underlying's daily performance and the leverage level. This means that the product does not replicate the underlying's total long-term performance but instead amplifies its variation day-by-day. This effect makes Multis suitable for very short-term or intraday strategies, but they are not recommended for long-term holding, as the accumulation of daily returns can significantly distance the final result from the underlying's total performance.

Bonus Certificates are exchange-traded products that allow the investor to benefit from the performance of the underlying asset, with the possibility of obtaining a guaranteed minimum return (the "bonus"), provided the underlying does not touch a predetermined lower barrier throughout the product's life. At maturity, if the asset has stayed above that barrier, the investor will receive the greater value between the underlying price and the guaranteed bonus level, allowing them to benefit from asset rises without giving up a minimum protection.

If, however, the underlying reaches the barrier at any time before maturity, the bonus guarantee disappears, and the certificate starts to behave like a direct investment: the investor will receive the final underlying value at maturity, assuming potential losses if the underlying has fallen. This structure makes the Bonus interesting for sideways or moderately bullish scenarios, and for investors who want to maintain exposure to the underlying with partial downside protection, provided the barrier is not crossed.

Bonus Cap Certificates operate under the same basic structure as Bonus: they offer the investor the possibility of obtaining the underlying asset's return, along with a minimum redemption guarantee (the "bonus") provided the underlying does not touch a lower barrier during the product's life. The main difference is that the Bonus Cap incorporates a maximum redemption limit (cap), which restricts the maximum profit the investor can obtain if the underlying rises sharply.

In practice, this means that if the underlying has stayed above the barrier at maturity, the investor receives the lesser value between the cap level and the underlying's quotation—but never less than the guaranteed bonus. If, conversely, the barrier is reached at any time, the bonus protection is lost, and the certificate simply returns the underlying's value at maturity. By limiting the upside potential, the Bonus Cap can usually be acquired with better terms (lower price, further barrier, or more attractive bonus), and it is useful in sideways or slightly bullish scenarios when the investor prioritizes certain protection and return visibility over the possibility of large rises. 

Inlines are exchange-traded products that allow for obtaining a fixed predefined return if the underlying asset's price remains within a specified range (between two barriers) throughout the product's life. In other words, the investor does not need to guess whether the market will rise or fall, but simply that it does not leave the established range. If the underlying has not touched either barrier (neither the upper nor the lower) at maturity, the investor receives the maximum agreed-upon payout.

Conversely, if either barrier is broken at any time before maturity, the product loses that fixed payout, and the redemption will directly depend on the underlying's level, which can result in losses.

These types of products are ideal in low-volatility environments or when the investor has a sideways or stability view on the market. Inlines allow investors to benefit from the underlying's lack of clear direction, but the risk lies in the fact that a single intraday breach of one of the barriers deactivates the benefit, even if the underlying returns to the range afterward.

Discount Certificates allow investment in an underlying asset (such as a stock or index) at a discount compared to its market price, in exchange for waiving part of the potential upside. By purchasing a Discount, the investor pays a lower price than the underlying, and at maturity, they can receive the underlying or an equivalent amount, always limited by a maximum price or "cap." This structure allows for obtaining a return even if the underlying remains stable or falls moderately, as long as it does not exceed the cap. The main risk is that, if the underlying falls significantly, the Discount will track that fall (although with less impact than a direct investment).

There are two types of structures: Discount Calls, which benefit if the underlying remains below the cap and are ideal for sideways or slightly bullish environments, sought by those looking for a more conservative way to access the underlying with some downside protection; and Discount Puts, which allow for obtaining a return when the underlying remains above the cap, and thus can be used in sideways or slightly bearish market scenarios. Both cases offer a more defensive alternative to direct investment, with the added appeal of the entry discount as a cushion against adverse market movements.

Stay High and Stay Low are exchange-traded products that allow the investor to obtain a fixed predefined return if the underlying asset's price remains above or below a single barrier throughout the product's life. In the case of Stay High, the underlying must remain above the barrier; in Stay Low, it must remain below.

If the barrier is not touched during the product's life, the investor receives the full agreed-upon payout at maturity. However, if the barrier is reached or breached at any time, the product loses that fixed return, and the redemption will depend on the final underlying level, with the possibility of losses.

This type of structure is useful for investors with a sideways view with a bullish bias (Stay High) or sideways view with a bearish bias (Stay Low), who seek a return without needing to predict a large rise or fall, but simply that the market does not cross a specific level. As with Inlines, the main risk is that a single, even momentary, breach of the barrier deactivates the guaranteed payout.

Certificates are financial products designed to directly replicate the performance of an underlying asset, such as a stock, index, or commodity, without the need to buy the asset itself. Unlike other structured products, certificates do not incorporate leverage or barriers, which makes them more transparent instruments. Their function is very similar to a direct investment, but with advantages such as the possibility of accessing international markets or baskets of assets with a single trade.

Warrants are complex, leveraged instruments. While they enable sophisticated strategies, the risk of loss can be significant. Before investing, it’s advisable to:

• Understand the product and its terms (maturity/expiry, barrier, ratio, premium).

• Assess your risk tolerance.

• Recognize that price performance depends on the underlying asset and factors such as volatility and time to maturity.