A discount call warrant belongs to the category of exotic warrants. In general, exotic warrants are the securitized combination of various options and thus a further development of classic ("vanilla") warrants. This combination allows investors to trade a complex investment strategy quite simple in the form of a security. The investment strategy on which the discount calls are based is a so-called call spread, which means the purchase (long position) of a call option with a lower strike price and the simultaneous sale (short position) of a call option with the same underlying asset, same maturity but with a higher strike price. By selling the call, the issuer collects an option premium, which is used to give the structure its eponymous characteristic, the discount. This benefits the investor, as the price of the discount call is significantly lower than that of a normal call warrant. In return for the discount, the investor gives up an unlimited participation in the price gains of the underlying instrument, since the chance of winning is limited upwards by a cap, in contrast to a classic call. This upper price limit corresponds to the strike price of the call sold. Thus, the maximum pay-out at maturity is the difference between the strike price of the long call and the strike price of the short call. This is because the sold position only has value at maturity if the market value of the underlying is higher than the strike price of this option, thus absorbing 1:1 the income of the long call that exceeds this level.
If the market value of the underlying at maturity is between the two exercise prices, the call sold expires worthless and the repayment is calculated as the difference between the final fixing of the underlying and the exercise price of the long call.
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