ONE of the interesting trading strategies involving instalment warrants is known as cash extraction.
It is designed for investors who currently hold shares and want to free up some cash.
The beauty of this strategy is that investors can free up some cash, yet retain an exposure to the market at the same time.
In short, it involves transferring an agreed number of, say, NAB shares to a special purpose equity trust, and receiving a corresponding number of NAB instalment warrants.
The investor chooses the specific series of NAB instalment warrants, based on their view of the market, risk tolerance and preferred time frame.
The investor will receive a cash-back amount that is equal to the current market price of the shares minus the price of the instalment warrants.
Laurence Laveau, marketing manager at SG Australia, said the cash-back amount represented a partial draw down of a loan with the shares used as security to back the loan.
“You will continue to receive income from the NAB shares (dividends) and have leveraged exposure to the NAB share price,” she said.
“The beneficial ownership of the shares has not changed through the cash extraction, hence you do not pay any capital gains tax on the cash you receive.”
