Options & Warrants


Options
Options trading is a contract between two parties providing the taker (buyer) with the right, though not the obligation, to buy or sell a specific parcel of shares at a predetermined price on or before a specified date. On the ASX, two main types of options are traded: call options, granting the right to buy underlying shares, and put options, providing the right to sell underlying shares.
With options trading, you have the flexibility to navigate the market movements and capitalise on opportunities, as you can trade options over most ASX-listed companies.
Advantages of options trading
Options trading offers several advantages, including effective risk management, using put options to hedge against potential share value declines. The flexibility of time to decide, provided by call and put options, allows holders to make informed choices before the option's expiry date. The ease of trading in and out of option positions enables investors to capitalise on market expectations without intending to exercise them. Leverage, though involving higher risk, allows for a higher return with a smaller initial investment, while the options market on the ASX facilitates portfolio diversification at a comparable or lower initial cost than direct share purchases. Additionally, options trading presents income generation opportunities, where shareholders can earn extra income by writing call options against their shares through a 'covered write' strategy.


Disadvantages of options trading
Options trading comes with inherent disadvantages that may not suit everyone due to the elevated risk level. Time value erosion can negatively impact the price of purchased options, even if the underlying instrument moves favourably. The use of options as a leveraging tool can magnify losses, leading to rapid and significant financial downturns. Additionally, options have a finite life, necessitating close monitoring, frequent observation, and ongoing maintenance, making them a more demanding investment instrument. Investors should carefully consider these factors and assess their risk tolerance before engaging in options trading.
Warrants
Warrants, a form of derivative traded on the ASX and Chi-X, offer investors a unique opportunity to trade underlying instruments like shares without direct ownership. Issued by banks, governments, or financial institutions, warrants come in various types, such as Self-Funding Instalments, trading warrants, Mini Warrants (MINIs), barrier warrants, commodity warrants, currency warrants, structured investment products, and endowment warrants. Each warrant type may carry a different risk/return profile. Call warrants capitalise on upward price movements in the underlying instrument, while put warrants benefit from a downward trend.


Advantages of warrants
Warrants, particularly instalments, offer investors the advantages of share ownership, allowing participation in capital movements and the receipt of dividends and franking credits. Instalment warrants function as a loan for purchasing shares, with no obligation to repay the loan immediately. Investors only need to make an initial payment, and the final payment is optional, payable at a later date. This mechanism provides flexibility and allows investors, including members of Self-Managed Superannuation Funds (SMSFs), to legally gear their funds for potential financial benefits.
Disadvantages of warrants
Warrants come with inherent disadvantages, as certain features can make them riskier than others. Time value erosion may impact the warrant price negatively, even when the underlying instrument moves favourably. For a comprehensive understanding of the risks and features associated with specific warrants, it is advisable to contact us and seek personalised advice. Investors should carefully assess these factors and consider individual risk tolerance before engaging in warrant trading.

News & Insights

This morning, I was asked to discuss Sarah Hunter’s presentation from yesterday. Sarah, the Assistant Governor and Chief Economist at the Reserve Bank of Australia (RBA), delivered a detailed and competent discussion on the conventional view of tariffs’ impact on the international economy. She highlighted that tariffs typically increase inflation and reduce economic output, a perspective echoed by the OECD in a similar presentation overnight. Sarah’s analysis focused on the potential shocks tariffs could cause, particularly their effects on GDP and inflation.
Drawing on my experience as an Australian trade commissioner and my work in Australian embassies, I found her presentation particularly interesting. My background allowed me to bring specialist knowledge to the conversation, which I believe gave me an edge. Notably, I observed that the RBA seems to lack analysts closely tracking individual policymakers in the Trump administration, such as Scott Bessent, whose views on tariffs and competition differ from the general assumptions. The conventional view assumes a world of perfectly competitive countries adhering to international trade rules and unlikely to engage in conflict—a scenario that doesn’t align with the current global trade environment, especially between China and the United States.
China, operating as a Marxist-Leninist economy, aims to dominate global markets by building monopolies in areas like rare earths, nickel, copper, and other base metals. It maintains a managed exchange rate, despite promises to the International Monetary Fund for a freely floating currency. If China allowed its currency, the RMB, to float, it would likely appreciate significantly, increasing imports and reducing its trade surplus. This would create a more balanced international trade environment, potentially reducing the need for other countries to impose tariffs. However, major institutions like the OECD and RBA seem to misjudge the nature of this trade shock, relying on outdated assumptions about global trade dynamics.
The international community also appears to overlook specific U.S. policy intentions, such as those articulated by figures like Peter Navarro and Scott Bessent. The U.S. aims to use tariffs selectively to bolster industries like pharmaceuticals, precision manufacturing, and motor vehicles. This misunderstanding leads public institutions to perceive unspecified risks, as reflected in Sarah’s otherwise able presentation. Because the RBA and similar institutions view the world as fraught with undefined risks, they are inclined to keep interest rates low, responding to perceived threats rather than an equilibrium model.
Interestingly, data from the U.S. economy contradicts the expected negative impacts of tariffs. The Chicago Fed National Activity Indicator, a reliable gauge of economic growth since the 2008 financial crisis, shows U.S. growth above the long-term trend for the first four months of this year. This suggests resilience despite tariff-related shocks. Ideally, growth will slow later this year, prompting the Federal Reserve to cut rates, facilitating a soft landing and a decline in the U.S. dollar to boost global commodity prices. However, this nuanced outlook wasn’t evident in yesterday’s presentation.
Moreover, the anticipated rise in U.S. inflation due to tariffs isn’t materialising. Scott Bessent recently noted that U.S. CPI inflation is lower than expected, with core inflation shown as the (16% trimmed mean) at 3% for the past two months . Core inflation excluding food and energy CPI is only at 2.8%. This suggests that Chinese suppliers are absorbing tariff costs to maintain market share, rather than passing them on as higher prices. Recent Chinese data supports this, showing a slight decline in manufacturing confidence and coal consumption, indicating reduced factory output and electricity use. This points to a modest slowdown in China’s economy. So far the expected negative effects on U.S. prices and output are not occurring.
In summary, the fears expressed by institutions like the RBA and OECD about the Trump administration’s trade policies appear overstated. The U.S. economy is not experiencing the predicted declines in output or increases in inflation. While these effects may emerge later, the current data suggests that the risks are not as severe as anticipated, highlighting a disconnect between theoretical models and real-world outcomes.

Today, I’m presenting the first page of my updated presentation, which focuses on GDP growth and inflation expectations for major economies. Before diving into that, I want to clarify a point about U.S. trade negotiations that has confused some media outlets.
In the previous Trump Administration ,there was single trade negotiator, Robert Lighthizer, held a cabinet position with the rank of Ambassador. This time, to expedite negotiations and give them more weight, Trump has appointed two additional cabinet-level officials to handle trade talks with different regions. For Asian economies, Scott Bessent and Ambassador Jamison Greer, who succeeded Lighthizer and previously served on the White House staff, are managing negotiations, including those with China. For Europe, Howard Lutnick, the Commerce Secretary, and Ambassador Greer are negotiating with the European Trade Representative. When the EU representative visits Washington, D.C., they meet with Lutnick and Greer, while Chinese or Japanese representatives engage with Bessent and Greer.
In my presentation today, I’m outlining the economic outlook for growth and inflation in the U.S., the Euro area, China, India, and Australia, drawing data from the International Monetary Fund, the Congressional Budget Office, European sources, and my own analysis for Australia.
For the U.S., the best-case scenario is a soft landing, with growth slowing but remaining positive at 1.3% this year and rising to 1.7% next year. This slowdown allows the Federal Reserve to continue cutting interest rates, leading to a decline in the U.S. dollar. This in turn ,triggers a recovery in commodity prices. These prices have stabilized and are now trending upward, with an expected acceleration as the dollar weakens.
U.S. headline inflation is projected to be just below 3% next year, with higher figures this year driven by tariff effects.
In the Euro area, growth is accelerating slightly, from just under 1% this year to 1.2% next year, with inflation expected to hit the 2% target this year and dip to 1.9% next year.
China’s GDP growth is forecast at 4% for both this year and next, a step down from previous 5% rates, reflecting a significant slump in domestic demand and very low inflation Chinese Inflation is only : 0.2% last year, 0.4% this year, and 0.9% next year. Despite a massive fiscal push, with a budget deficit around 8% of GDP, China’s debt-to-GDP ratio is rising faster than the U.S.. Yet this is yielding more modest domestic growth.
India, on the other hand, continues to outperform, with 6.5% GDP growth last year, 6.2% this year, and 6.3% next year, surpassing earlier projections.

Positive earnings surprise
In our International Reporting Season Review, we provide an overview of the March 2025 quarterly results season for companies in the Americas, Europe and Asia. For all the volatility in markets caused by US trade policy, the results were positive. For all the 187 high profile and blue-chip companies in our International Watchlist, the median EPS beat vs consensus was 3.2%, nearly twice that recorded in the December quarter (1.8%). 37% of companies exceeded consensus EPS expectations by more than 5% and only 9% missed by more than 5%. Communication Services was the most positive sector, led by Magnificent 7 companies Alphabet and Meta Platforms. The median EPS beat in that sector was 13%. Consumer Discretionary was the biggest disappointment (though only a mild one) with EPS falling 0.6% short of analyst estimates on a median basis.
Alphabet and Meta among the best performers
Across our Watchlist, some of the best performing stocks in terms of EPS beats were Alphabet, Boeing, Uniqlo-owner Fast Retailing, Meta Platforms, Newmont and The Walt Disney Company. Notable misses came from insurance broker Aon, BP, PepsiCo, Starbucks, Tesla and UnitedHealth. The latter saw by far the worst share price performance over reporting season, its earnings weakness compounded by the resignation of its CEO and the launch of a fraud investigation by the Department of Justice. British luxury fashion label Burberry had the best performing share price as it gains traction in its turnaround plan.
Tariffs were the main talking point (of course)
The timing of President Trump’s ‘Liberation Day’ on 2 April, just before the March quarter results started rolling in, guaranteed that US tariffs would be the main talking point throughout reporting season. Most companies took the line that higher tariffs presented a material risk to global growth and inflation. The rapidly shifting sands of US trade policy mean the impact of tariffs is highly uncertain. This didn’t stop many companies from trying to estimate the impact on their profits. This ranged from the very precise ($850m said RTX) to the extremely vague (‘a few hundred million dollars’ hazarded Abbott Laboratories). The rehabilitation of AI as a systemic driver of long-term value was a key theme of reporting season, with many companies reporting what Palantir Technologies described as an ‘unstoppable whirlwind of demand’ and others indicating an increase in planned AI investment. The deterioration in consumer confidence was another key talking point, though most companies could only express concern about a possible future softening in demand rather than any actual evidence of a hit to sales.
Our International Focus List continues to outperform
In this report, we also report on the performance of the Morgans International Focus List, which is now up 25.3% since inception last year, outperforming the benchmark S&P 500 by 20.4%.




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