Lehman Currency Warrant

A reader asked for my opinion on the Asian Currency Warrant that was recently issued by the House of Lehman, mentioned in the Striking Price column over the weekend.

My starting point is that I am favorably disposed to products that give investors the chance to hedge dollar exposure. I have written about the concept many times.

For those who did not read the article or may not be familiar with warrants they quack like options. These warrants, which trade on the AMEX under ticker AAB.WS (go to the AMEX site to get a quote), mature/expire on February 13, 2008.

Options provide leverage. Leverage can either enhance returns or blow an investor up, depends how it is used. Per the article and the prospectus $6 and change (the issue price was $6.23) controls $95 worth of Asian currencies. Also keep in mind that someone is on the other side of these warrants. Either Lehman is taking the risk or more likely they sold the other side of the trade to another party.

Whoever is on the other side is smarter than I am, are they smarter than you?

This type of product is, in my opinion, different than the other products I have written about. The warrants could be worthless at expiration. With any of the currency ETFs zero won't happen, save for a repeat of the Weimar Republic somewhere.

I would probably be favorably disposed to a product with a little leverage, say 1.25 to 1, but the leverage in the warrant is enough for this to lose a lot of money.

On a side note I think today's lift has a better chance to stick than the lift yesterday.