How to Pick a Warrant: A Step-by-Step Guide
How to pick a structured warrant — comparing strike, expiry, gearing, delta, premium, and issuer to match your trading view, with worked examples on Bursa Malaysia and HKEX warrants.
By warrants.asia Editorial Team · Published July 20, 2026
- 01
Start with the underlying and your directional view
Decide which stock or index you want exposure to, and whether the view is bullish (call) or bearish (put).
- 02
Choose the right expiry
Give the trade room to work — pick an expiry with 2–3× the time you expect the move to take.
- 03
Select a strike (moneyness)
Match moneyness to the move: ITM for modest high-conviction moves, OTM for larger breakouts.
- 04
Compare gearing, effective gearing, and premium
Weigh effective gearing against premium — higher leverage usually means a harder break-even.
- 05
Check the issuer and liquidity
Prefer issuers with tight bid-ask spreads and reliable market-making; check volume before buying.
Step 1: Start with the underlying and your directional view
Before comparing warrants, decide which underlying you want exposure to (a single stock like Maybank or Sunway, or an index like the HSI or HSTECH) and whether you're bullish (call warrant) or bearish (put warrant). The warrant is a tool to express that view — if you don't have a clear directional thesis on the underlying, a warrant amplifies uncertainty rather than conviction.
Check the underlying's recent price action, support/resistance levels, and any upcoming events (earnings, dividends, index rebalancing) that could move the price. These factors don't just inform your directional view — they also influence which strike and expiry make sense.
Step 2: Choose the right expiry
Expiry determines how long your trade has to work. A common rule of thumb: pick an expiry that gives at least 2–3× the time you expect the underlying to need to hit your target. If you think Maybank will rally over the next two weeks, a warrant expiring in 6–8 weeks gives a comfortable buffer; one expiring next week is cutting it dangerously close, because time decay accelerates in the final days.
Longer-dated warrants cost more (higher premium due to more time value) but decay more slowly, giving the trade more room to breathe. Shorter-dated warrants are cheaper but brutally time-sensitive. There's no universally correct choice — it depends on how quickly you expect the move and how much time-decay risk you're willing to absorb.
Step 3: Select a strike (moneyness)
The strike price determines the warrant's moneyness — whether it's in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM). Each carries a different risk/reward profile.
ITM warrants (strike below the current price for calls, above for puts) have higher delta and lower gearing — they respond more to small moves but offer less leverage. OTM warrants have higher gearing but need a bigger move in the underlying to become profitable. ATM warrants sit in the middle, often preferred by active traders as a starting point. If you expect a large, directional breakout, OTM offers more bang per ringgit. For a modest, high-conviction move, ITM or ATM is usually more appropriate.
Step 4: Compare gearing, effective gearing, and premium
Once you've narrowed to a handful of warrants with the right underlying, direction, expiry, and approximate strike, compare them on three numbers: effective gearing (the real-world leverage multiple), premium (the break-even hurdle), and implied volatility (how expensive the warrant is relative to the market's view of future swings).
A warrant with 5× effective gearing and 8% premium will break even if the underlying moves 8% in the favorable direction by expiry. A competing warrant might have 7× effective gearing but 12% premium — higher leverage, but a harder break-even to reach. Neither is inherently better; the right choice depends on the size and timing of the move you expect.
Step 5: Check the issuer and liquidity
On Bursa Malaysia, the same underlying can have competing warrants from Macquarie, RHB, Kenanga, CIMB, Maybank IB, and the other licensed issuers. Issuers differ in the tightness of their bid-ask spreads, how consistently they quote prices (market-making quality), and the range of strikes and expiries they offer. A warrant with excellent theoretical metrics but a wide bid-ask spread or thin volume can erode returns in practice through execution slippage.
Check the warrant's recent trading volume, the issuer's quoted bid-ask spread (available on each issuer's live search tool, linked from the issuer pages on this site), and whether the issuer has a reputation for reliable market-making. The cheapest warrant on paper isn't always the best warrant in practice.
FAQ
How do I pick the best warrant for a trade?
Start with your directional view on the underlying, then narrow by expiry (2–3× your expected timeframe), strike (based on expected move size), and compare effective gearing, premium, and bid-ask spread across available warrants from different issuers.
Should I pick the warrant with the highest gearing?
Not automatically. Higher gearing comes with lower delta and higher premium, meaning the underlying needs a bigger move to break even. Match the gearing level to the size of the move you expect — don't chase leverage for its own sake.
How many days before expiry should I buy a warrant?
A common rule of thumb is to choose a warrant with at least 2–3 months to expiry to avoid severe time decay. Holding warrants into the final 30 days is risky unless you have strong conviction in an imminent move, because daily time-value erosion accelerates sharply near expiry.
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