What to do with warrants

By THIS IS MONEY
Updated:

 

MY Merrill Lynch European investment trust warrants, bought at 27p, expire at the end of July with a last chance to buy the underlying share at a nominal price of £1. The market price of a warrant is currently £0.36 and the parent share £1.36, so assuming the same charge applies to selling the warrants as to buying the parent shares, it looks best to sell the warrants and save the stamp duty on buying the shares.

This takes no account of what the underlying share is likely to do once the warrants are out of circulation and the NAV is no longer diluted. If its price is likely to increase it would be better to hold the warrants until the end? RB, Newcastle upon Tyne

Justin Modray at independent financial advisors Bestinvest says: Your decision depends primarily on one factor: how do you expect the price of the shares in ML European to move until the expiry date?

If you think the price will rise then hold on to the warrants, if not then consider selling now. As you will appreciate, accurately predicting price movements is nigh-on impossible.

Your shares increased around 46% in the year to end of February 2004, but the vagaries of stock markets means anything could happen between now and July.

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