Why is my call warrant falling when the share is rising?

Consider an ordinary call warrant on a share. Its strike, or exercise price, is €100. Its ratio is 0.1: each euro by which the share is above the strike contributes €0.10 of intrinsic value per warrant. This warrant has a fixed expiry and no knock-out barrier.

Initially the share is at €100. Assume the warrant has a €1 bid and a €1.04 ask. The bid is what you can receive when selling; the ask is what you pay when buying. You buy one warrant for €1.04. We omit fees to keep the price components clear.

Later the share is at €102. The call now has €0.20 intrinsic value: (€102 − €100) × 0.1. But assume its time value has fallen from €1 to €0.50. Its new bid is only €0.70. Selling now returns €0.34 less than your original purchase price, even though the share gained €2.

Intrinsic value is the positive gap above the strike, adjusted for the warrant ratio. Time value is the additional part of the price. It reflects what could still happen before expiry. A call can therefore have a price before expiry even when the share is below its strike.

As time runs down, those possibilities narrow. All else equal, this tends to weigh on an ordinary call warrant. The decline is not the same amount every day, and it is not a fixed charge simply deducted from your account.

In our example, intrinsic value gains €0.20 while assumed time value loses €0.50. The new positive gap above the strike does not make up for the fall in the other price component.

Implied volatility, or IV, is the level of future movement reflected in an option price. It does not predict that the share will rise. All else equal, more expected movement tends to increase the price of an ordinary call; less can lower it.

After a widely anticipated event, uncertainty can leave the price. The share may rise a little while the market prices in less future movement. The assumed reduction in time value in our example can represent this effect together with the passage of time.

It would be inaccurate to attribute every loss on a warrant solely to IV. First compare share price, remaining time and executable quotes at matching times. Dividend expectations and interest rates can also matter to pricing.

The difference between bid and ask is the spread. In our example, the immediate selling bid is already below the ask you paid. Your displayed position can therefore start below its purchase cost even if the share and the warrant valuation have not moved.

A changing spread can widen the later difference. Do not compare yesterday’s ask with today’s bid and call all of that change time decay. To study how quotes changed, compare bid with bid or ask with ask. To calculate your own sale result, compare today’s executable bid with the price you actually paid.

A market maker, often the issuer, quotes a warrant. Hedging, liquidity and product terms can affect those quotes. A portfolio display or last transaction is not necessarily an executable selling price now.

A call far below its strike often responds less to a small share rise than a comparable call deep in the money. Delta approximates that sensitivity. For a warrant, remember its ratio as well. Delta can change and is not a promise.

A stated leverage figure alone does not tell you the percentage gain from the next share move. Sensitivity, time, volatility and the spread interact. You can be right about the share direction and still lose on the warrant.

An ordinary warrant is paid for in full; its leverage comes from its structure and relatively low price. It does not require the daily CFD margin top-up described for a CFD. Interest and expected dividends may be included in its valuation. At expiry, the issuer terms govern settlement and no time value remains.