Add to my collection

Gain leveraged exposure to a wide range of assets with Barclays covered warrants. You can profit in rising and falling markets yet your risk is limited to your initial investment. But be aware that this is a high risk form of investment.

Apply now

Open a MarketMaster® account now

Why Covered Warrants & Turbos

A flexible alternative to traditional equity trading, Covered Warrants and Turbos give you the potential to magnify gains while limiting losses. Please be aware though that covered warrants are considered a high-risk asset; you can lose all the money that you invest.

  • Boost your profits

    Get full exposure to a share, index or commodity for a fraction of its full value. Yet any profit or loss you make is based on the full value.
  • Limit your risk

    Unlike with most other leveraged investment products, you’ll never lose more than your initial investment.
  • Profit in volatile markets

    With most investments, the aim is to buy low and sell high. A covered warrant works differently. It gains value as the price of the asset falls.
  • Hedge your portfolio

    Because you can make gains in falling markets, you can use covered warrants to try to offset losses on your share portfolio.
  • Go long or short

    ‘Call’ covered warrants let you benefit from a rising market, while ‘put’ covered warrants rise in value as the price of the underlying asset falls.
  • Close out any time

    Covered warrants have a fixed expiry date but you can sell them back into the market at any time right up until expiry.
  • Stay in control

    Although there’s the potential to make uncapped gains, you’ll never lose more than your original investment, no matter how far the market moves against you.

Risks and disadvantages

  • Be aware that all of your initial investment could be lost; covered warrants are considered a high-risk asset better suited for experienced traders
Case Studies

If you are trading covered warrants and turbos for the first time, take a look at the examples below to find out how they could add value to your portfolio.

Call covered warrant case study

A call covered warrant gives the investor the potential to benefit from an increase in the value of the underlying asset, while limiting potential losses to the premium paid.
For all covered warrant investments, the investor can easily calculate the ‘’break-even’’ of the investment. This is the underlying price level that needs to be reached at maturity, to allow the investor to make profit.

  • Call Break-even = Strike price + (Premium x Parity)
  • Put Break-even = Strike price - (Premium x Parity)

Example of a call covered warrant

An investor has a bullish view on the FTSE 100 index over the next 4 months, so buys 10,000 call covered warrants on the index for a Premium of £2,000 (20p * 10,000).
Thus, the investor has exposure to the shares included in the FTSE 100, but without the expense of having to individually buy all the shares.

  • Strike: 5,500
  • Maturity: 6 months 
  • Premium: 20p 
  • Parity: 1000/1
  • Quantity: 10,000
  • Current level of the FTSE 100 index: 5,100

At maturity

Option 1: The level of the FTSE 100 index is ≥ 5,700

  • The initial premium payment (£2,000) for the products is covered by the difference between the underlying level and the strike price
  • 5,700 is the ‘’break-even’’ of the covered warrant.
    If the underlying level rises beyond this, the investor will make a profit at maturity. 5,700 = Strike price + (Premium x Parity) ie. 5,500 + (20p x 1000)

The precise amount of the payoff depends entirely upon the settlement price of the Index upon expiry of the covered warrant. Some examples of payoffs are illustrated below, together with how they are calculated:

Settlement price

Payoff

Pay off calculation
(Settlement price-strike price x no
of warrants/parity)

Profit

Profit calculation
(Payoff-premium paid)

5,800
6,000
6,500

£3,000
£5,000
£10,000

(5,800 – 5,500) x 10,000)/1,000 = 3,000
(6,000 – 5,500) x 10,000)/1,000 = 5,000
(6,500 – 5,500) x 10,000)/1,000 =10,000

£1,000
£3,000
£8,000

£3,000 - £2,000
£5,000 - £2,000
£10,000 - £2,000


Option 2: The level of the FTSE 100 index is ≤ 5,700

  • The underlying level is below the ‘’break-even’’ point, so a loss is incurred for the investor.
  • If the index does not exceed the Strike level of 5,500 at maturity, the loss represents the entire initial amount invested to buy the call covered warrants:
    £2,000 = (20p * 10,000)

Should the settlement price of the Index be between 5,500 and 5,700, then there will be a payoff, but it will be less than the premium originally invested, and so the investor will make a loss. For example:

Settlement price

Payoff

Pay off calculation
(Settlement price-strike price x no of warrants/parity)

Loss

Loss calculation calculation
(Payoff-premium paid)

5,600

£1,000

(5,600 – 5,500) x 10,000)/1,000 = 1,000

£1,000

£1,000 - £2,000

The maximum the investor can lose with covered warrants is the initial capital invested.

Put covered warrant case study

A put covered warrant gives the investor the right to sell an underlying asset at a predetermined strike price at maturity for a premium.
The purchase of a put covered warrant is suitable for a strategy based on an expected decrease in the value of the underlying asset. The Put can be used for portfolio hedging or speculative investment for an underlying asset going down.

Example of a put covered warrant

An investor has a bearish view on BP over the next 3 months, so buys 1,000 put covered warrants on the share for a Premium of £470 (47p * 1,000).

  • Strike: 475p
  • Maturity: 10 months
  • Premium: 47p
  • Parity: 1/1
  • Quantity: 1,000

At maturity

Option 1: The BP share price is ≤ 428p

  • The initial premium payment (£470) for the products is covered by the difference between the underlying level and the strike price.
  • 428p is the ‘’break-even’’ of the covered warrant.
  • If the underlying level falls below this, the investor will make a profit at maturity.
    428p = Strike price - (Premium x Parity).
    = [475 - (47p x 1)]


Option 2: The BP share price is ≥ 428p

  • The underlying level is above the ‘’break-even’’ point, so a loss is incurred by the investor.
  • If the share price exceeds the Strike level of 475p at maturity, the loss represents the entire initial amount invested to buy the put covered warrants: 
  • £470 = (47p * 1,000).

Find out more about Covered Warrants and Turbos

0800 279 6551*