{"date":"2025-04-09T00:00","headerImageUrl":"https://structuredproducts-ch-pub-uat.leonteq.com/product-news/product-homepage-banner/leonteq-know-how-product+homepage+banner.jpg","subTitle":"What are Warrants with Knock-Out? A guide for private investors","windowTitle":"Leonteq Know-How","category":"know-how","title":"Leonteq Know-How 13","body":"<p>Warrants with Knock-Out are leverage products that allow investors to participate in the price movement of an underlying asset with a comparatively small capital investment. But how do they work, what are their opportunities and risks, and how do they differ from <a href=\"/news/all/know-how-mini-futures\" target=\"_blank\" rel=\"noopener\">Mini Futures<\/a>? This article will give you a comprehensive introduction.<\/p>\n<h3>1. What are Warrants with Knock-Out?<\/h3>\n<p>A Warrant with Knock-Out is a derivative that is closely linked to the price movement of an underlying asset (e.g. a share, index or currency). There are two main types:<\/p>\n<ul>\n    <li><b>Call Warrant with Knock-Out: <\/b>Profit from rising prices of the underlying asset.<\/li>\n    <li><b>Put Warrant with Knock-Out: <\/b>Profit from falling prices of the underlying asset.<\/li>\n<\/ul>\n<p>In contrast to classic Warrants, Warrants with Knock-Out have a so-called knock-out threshold. If this threshold is reached or exceeded by a price gap, the product usually expires worthless immediately.<\/p>\n<h3>2. How does a Warrant with Knock-Out work?<\/h3>\n<p>A Warrant with Knock-Out consists of the following components:<\/p>\n<ul>\n    <li><b>Strike price: <\/b>Also called strike or financing level. The issuer assumes part of the investment, which means that the investor only has to finance a fraction of the underlying asset. It plays a central role in the pricing and leverage of a Warrant with Knock-Out.<\/li>\n    <li><b>Knock-out level:<\/b> If this level is reached, the product immediately expires worthless. The knock-out level corresponds to the strike price.<\/li>\n    <li><b>Leverage: <\/b>The leverage results from the ratio between the current price of the underlying and the current price of the Warrant with Knock-Out.<\/li>\n<\/ul>\n<h3>3. The leverage effect of Warrant with Knock-Out<\/h3>\n<p>Leverage is a key feature of these products:<\/p>\n<ul>\n    <li><b>Level of leverage: <\/b>Unlike Mini Futures, Warrants with Knock-Out do not have an upstream stop-loss threshold, which means that the strike price can be placed closer to the price of the underlying asset, allowing for higher leverage.<\/li>\n    <li><b>Dynamics: <\/b>The closer the underlying is to the knock-out level, the higher the leverage - but also the higher the risk of a total loss.<\/li>\n    <li><b>Calculation: <\/b>The leverage is calculated using the following formula:\n    <math xmlns=\"http://www.w3.org/1998/Math/MathML\">\n    <mi>Leverage<\/mi>\n    <mo>=<\/mo>\n    <mfrac>\n        <mtext>Underlying price [if applicable x exercise ratio x FX]<\/mtext>\n        <mtext>Warrant price<\/mtext>\n    <\/mfrac>\n    <\/math><\/li>\n    <ul>\n        <li>Where FX is the exchange rate between the currency of the underlying and the currency of the product.<\/li>\n    <\/ul>\n<\/ul>\n<p><b>Example: <\/b>An investor buys a Call Warrant with Knock-Out with an exercise ratio of 1 on a share quoted at CHF 100. The strike price is CHF 90, so the investor only invests CHF 10. This results in a leverage of 10 (CHF 100 / CHF 10). The knock-out level corresponds to the strike price and is therefore CHF 90. <\/p>\n<p><b>Possible scenarios: <\/b><\/p>\n<ul>\n    <li>1. the share rises to CHF 110 (+10%):<\/li>\n    <ul>\n        <li> The Warrant with Knock-Out rises from CHF 10 to CHF 20 (+100%)<\/li>\n        <li>Due to the leverage effect, the gain is disproportionately high.<\/li>\n    <\/ul>\n    <li>2. The share falls to CHF 90 (knock-out level reached):<\/li>\n    <ul>\n        <li>The product automatically expires worthless. If, for example, the underlying opens significantly below the knock-out level on a trading day due to a gap (a price gap), the product expires worthless, but there is no obligation to make additional payments. <\/li>\n    <\/ul>\n<\/ul>\n\n<div><generic-chart title=\"Payout profile sample Warrant with Knock-Out\"> \n        <chart-line yAxisTitle=\"Profit / Loss\" title=\"Warrant with Knock-Out\" path=\"Chart_WKO12.csv\" format=\"number, number\"><\/chart-line>\n        <chart-line title=\"Underlying\" path=\"KO_basiswert.csv\" format=\"number, number\"><\/chart-line> \n        <x-axis type=\"number\" title=\"Price in CHF\"><\/x-axis>\n        <\/generic-chart><\/div>\n <footer>Source: Leonteq Securities<\/footer>\n \n<h3>4. Factors influencing the price of a Warrant with Knock-Out<\/h3>\n<p>Several factors determine the value of a Warrant with Knock-Out:<\/p>\n<ul>\n    <li><b>Price of the underlying: <\/b>The performance of the underlying has a direct impact on the price of the Warrant with Knock-Out.<\/li>\n    <li><b>Strike price: <\/b>The closer the strike price is to the current price of the underlying, the more of the investment is financed by the issuer, thus ensuring higher leverage.<\/li>\n    <li><b>Leverage: <\/b>The higher the leverage, the greater the potential gains - but also the greater the risk of loss.<\/li>\n    <li><b>Financing costs: <\/b>As the issuer bears part of the investment, ongoing financing costs are incurred, which are borne by the investor through continuous adjustment of the strike price.<\/li>\n<\/ul>\n<ltq-table id=\"Price factors Warrants with Knock-Out Open End\" title=\"Price factors Warrants with Knock-Out Open End\"> <template v-slot:default=\"\">\n    <thead>\n        <tr>\n            <th>Price factor<\/th>\n            <th>Movement of the price factor<\/th>\n            <th class=\"blue-header\">Price of the Call Warrant with Knock-Out Open End<\/th>\n            <th class=\"blue-header\">Price of the Put Warrant with Knock-Out Open End<\/th>\n        <\/tr>\n    <\/thead>\n    <tbody>\n        <tr>\n            <td rowspan=\"2\" style=\"vertical-align: middle;\">Price of the underlying (key figure: Delta)<\/td>\n            <td><span class=\"arrow-up\">↑<\/span> rises<\/td>\n            <td style=\"color: var(--color-text-success);\"><span class=\"arrow-up\">↑<\/span> rises<\/td>\n            <td style=\"color: var(--color-text-error);\"><span class=\"arrow-down\">↓<\/span> decreases<\/td>\n        <\/tr>\n        <tr>\n            <td style=\"padding-left: 0\"><span class=\"arrow-down\">↓<\/span> decreases<\/td>\n            <td style=\"color: var(--color-text-error);\"><span class=\"arrow-down\">↓<\/span> decreases<\/td>\n            <td style=\"color: var(--color-text-success);\"><span class=\"arrow-up\">↑<\/span> increases<\/td>\n        <\/tr>\n        <tr>\n            <td rowspan=\"2\" style=\"vertical-align: middle;\">Volatility/fluctuation range (key figure: Vega)<\/td>\n            <td><span class=\"arrow-up\">↑<\/span> increases<\/td>\n            <td>low<\/td>\n            <td>low<\/td>\n        <\/tr>\n        <tr>\n            <td style=\"padding-left: 0\"><span class=\"arrow-down\">↓<\/span> decreases<\/td>\n            <td>low<\/td>\n            <td>low<\/td>\n        <\/tr>\n        <tr>\n            <td rowspan=\"2\" style=\"vertical-align: middle;\">Dividend expectation<\/td>\n            <td><span class=\"arrow-up\">↑<\/span> increases<\/td>\n            <td>no influence<\/td>\n            <td>no influence<\/td>\n        <\/tr>\n        <tr>\n            <td style=\"padding-left: 0\"><span class=\"arrow-down\">↓<\/span> decreases<\/td>\n            <td>no influence<\/td>\n            <td>no influence<\/td>\n        <\/tr>\n        <tr>\n            <td>Holding period<\/td>\n            <td><span class=\"arrow-up\">↑<\/span> increases<\/td>\n            <td style=\"color: var(--color-text-error);\"><span class=\"arrow-down\">↓<\/span> decreases<\/td>\n            <td style=\"color: var(--color-text-error);\"><span class=\"arrow-down\">↓<\/span> decreases<\/td>\n        <\/tr>\n    <\/tbody>\n    <\/template>\n<\/ltq-table>\n\n<h3>5. Opportunities and risks of Warrants with Knock-Out<\/h3>\n<p><b>Opportunities:<\/b><\/p>\n<ul>\n    <li><b>High profit opportunities: <\/b>Due to the leverage, even small price movements can generate large returns.<\/li>\n    <li><b>Targeted market strategies: <\/b>Investors can bet on both rising and falling prices.<\/li>\n    <li><b>Limited capital investment: <\/b>Only a fraction of the underlying asset is required as an investment.<\/li>\n<\/ul>\n<p><b>Risks:<\/b><\/p>\n<ul>\n    <li><b>Risk of total loss: <\/b>If the knock-out threshold is reached or exceeded, the warrant usually expires worthless.<\/li>\n    <li><b>Price gaps: <\/b>Sudden market movements can trigger the knock-out without warning.<\/li>\n    <li><b>Gap risk premium: <\/b>Investors pay a fee for the issuer's risk.<\/li>\n<\/ul>\n<h3>6. Differences between Warrants with Knock-Out and Mini Futures<\/h3>\n<p>Although both products offer leverage, there are some key differences:<\/p>\n<ul>\n    <li><b>Knock-out mechanism: <\/b>Warrants with Knock-Out expire immediately when the knock-out level is reached, while Mini Futures have an upstream stop-loss level that allows for a possible redemption of the residual value.<\/li>\n    <li><b>Gap risk premium: <\/b>In the case of Warrants with Knock-Out, the lack of a stop-loss level means that the issuer bears the risk of the underlying falling directly below (call) or above (put) the knock-out level due to a price gap and the issuer being unable to terminate the hedging transaction quickly enough. The issuer therefore charges a gap risk premium, which is included in the product costs.<\/li>\n    <li><b>Leverage: <\/b>Warrant with Knock-Out can be issued with higher leverage. This is because the lack of a stop-loss level allows for a strike price closer to the current price of the underlying, reducing the entry price.<\/li>\n<\/ul>\n<h3>7. Conclusion: Are Warrants with Knock-Out suitable for you?<\/h3>\n<p>Warrants with Knock-Out are speculative financial instruments with high profit potential, but also high risk. They are suitable for investors who are aware of the leverage effect and the knock-out problem. If you want to reduce the risk of a total loss, you should consider Mini Futures as an alternative.<\/p>\n\n<p><b>Tip: <\/b>Before investing in Warrants with Knock-Out, you should familiarize yourself with the mechanisms and costs and only invest capital that you can afford to lose.<\/p>\n<p>Would you like to find out more about Leverage Products? Our team of experts will be happy to help you!<\/p>\n<!-- <h3>8. discover our range of Call and Put Warrants with Knock-Out<\/h3> -->\n\n<ltq-button color=\"primary\" url=\"https://structuredproducts-ch.leonteq.com/leverage/Wvs?language_id=1\" label=\"Discover our Warrants with Knock-Out!\"><\/ltq-button>\n<div>      <p>We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: <a href=\"tel:+41588001111\">058 800 11 11<\/a>, email <a href=\"mailto:info@leonteq.com\">info@leonteq.com<\/a> or <a href=\"/contact\" title=\"Contact\">contact us here<\/a>.\n<\/p>\n  <\/div>","url":"know-how-warrant-mit-knock-out","investmentThemeVerticalImageUrl":"https://structuredproducts-ch-pub-uat.leonteq.com/product-news/sidenav-banner/leonteq-know-how-sidenav+banner.jpg","thumbnailUrl":"https://structuredproducts-ch-pub-uat.leonteq.com/product-news/thumbnail/leonteq-know-how-thumbnail.jpg"}