Warrants are systematically overpriced relative to equivalent options. Engine 7 scans 15,000+ instruments across four exchanges, scores them by regime alignment and mispricing, and generates trade and signal opportunities that exploit this structural issuer margin.
Warrants and structured products are issued by banks, not exchanges. Issuers embed a margin into the product price that consistently exceeds the fair option value. Academic research has quantified this gap across multiple markets and decades.
Fung (2012) found that warrant implied volatility exceeds option implied volatility on the same underlying by a statistically significant margin. Entrop, Scholz, and Wilkens (2020) measured issuer margins of 0.58–3.50% on leverage certificates. Baule and Tallau (2011) confirmed similar overpricing in discount certificates.
Warrant IV premium 0.58–3.50% above equivalent options. BaFin (2025) found that 75% of turbo warrant buyers lose money. A systematic scanner that filters for favourable barrier distance, IV premium, and regime alignment addresses the exact factors that cause retail losses.
Engine 7 deploys different sub-strategies depending on the GateKeeper regime, maximising edge in each market condition.
Active in TREND_UP and TREND_DOWN regimes. Turbos provide near-delta-1 exposure with a built-in knock-out barrier that acts as a hard stop loss. Bull turbos in uptrends, bear turbos in downtrends. The key edge: selecting products with barrier distance > 10%, low funding cost, and IV premium below the 50th percentile of peers. CBBCs (Callable Bull/Bear Contracts) on HKEX follow the same logic with Category R retaining residual value after knock-out.
Active in RANGE regime. Discount certificates provide the underlying at a discount to spot in exchange for a capped upside. In range-bound markets, the discount acts as a buffer against moderate declines while the cap is unlikely to be reached. The scanner selects certificates with discount > 5%, cap within the range band, and expiry of 60–120 days.
Always active, all regimes. Compares warrant implied volatility against exchange-traded option IV on the same underlying and expiry. When the spread exceeds the 80th percentile of its 90-day history, the scanner flags it as an IV dislocation signal. This sub-strategy is signal-only — subscribers with options access can construct their own warrant-vs-option relative value trades.
The warrant universe is too large for inline scanning. Engine 7 uses a separate scanner service that runs hourly as a systemd oneshot, producing a ranked watchlist that the trading bot consumes.
Query IBKR API with exchange + underlying pairs (e.g., HKEX + HSI, SBF + CAC40). Always bounded — never send an open-ended IOPT query, which can return thousands of results and break the API connection.
Filter by bid-ask spread (≤ 2%), minimum DTE (14 days for turbos, 30 for discount certs), and barrier distance (≥ 8%). This eliminates illiquid and near-knock-out products that dominate the raw universe.
Calculate warrant implied volatility via Black-Scholes Newton-Raphson solver. Compare against option chain IV on the same underlying. Compute IV premium percentile relative to 90-day history. Flag IV relative value signals.
Filter candidates by GateKeeper regime. TREND_UP keeps bull turbos, TREND_DOWN keeps bear turbos, RANGE keeps discount certificates, CRISIS blocks new entries entirely. Regime is mirrored from Engine 2’s MES reference instrument.
Composite score: barrier distance (30%), IV premium (25%), funding cost (20%), leverage (15%), bid-ask spread (10%). Top candidates are written to the scanner state file for the trading bot to evaluate on its 5-minute cycle.
Engine 7 physically trades warrants on two exchanges where IBKR supports execution and the underlyings are liquid enough for the $25,000 allocation.
The world’s largest structured products market by volume. HKEX lists thousands of warrants, CBBCs, and inline warrants on HSI alone. Deep liquidity ensures tight spreads and reliable execution for the scanner’s top picks.
France’s leading equity index with active turbo and discount certificate markets on Euronext. Provides European timezone exposure complementing HKEX’s Asian hours.
HSCEI (Hang Seng China Enterprises), DAX (Eurex), Euro Stoxx 50 (Eurex), STI (SGX). Signals are published via Discord and Telegram for subscribers who have access to these exchanges. Labelled [SIGNAL ONLY].
Warrant positions are managed by five exit rules, checked on every 5-minute cycle.
Close when the underlying price is within 3% of the knock-out barrier. The barrier provides a hard stop, but exiting before knock-out preserves residual time value.
Close turbos at 30% profit. Close discount certs at 15% profit. These targets reflect the different leverage and time characteristics of each product type.
Close turbos at 20% loss. Close discount certs at 10% loss. The barrier on turbos provides additional protection, but the stop loss catches gap-through scenarios on Category N products where knock-out means total loss.
Close any position with fewer than 5 DTE. Time decay accelerates sharply near expiry, and liquidity often deteriorates in the final days.
Close turbo positions if the regime changes to the opposite direction (e.g., bull turbo open when regime shifts to TREND_DOWN). Discount certs are closed if regime exits RANGE.
Engine 7 has its own $25,000 allocation, independent of the E5/E6 options pool.
Position sizing: 2% risk per turbo trade ($500), 5% per discount cert ($1,250).
Max positions: 5 concurrent (across all sub-strategies).
Monthly drawdown halt: 10% ($2,500). All entries pause until the next calendar month.
CRISIS regime: No new entries. Existing positions managed to exit only.
[1] Fung, J.K.W. (2012). “Derivative Warrants, Market Completion
and Investor Behavior in an Emerging Market.” Journal of Derivatives. Warrant IV
systematically exceeds option IV on the same underlying.
[2] Xiong, J.X. & Yu, K. (2011). “Warrant Overpricing: Explanations
and Implications.” Journal of Behavioral Finance. Retail behavioral biases (lottery
preference, overconfidence) contribute to warrant overpricing.
[3] Entrop, O., Scholz, H. & Wilkens, M. (2020). “The Price of
Being a Certified Leverage Product.” Issuer margins of 0.58–3.50% embedded
in structured product pricing.
[4] Baule, R. & Tallau, C. (2011). “The Pricing of Discount
Certificates.” Review of Derivatives Research. Discount certs priced 1.2–2.8%
above replication cost, funded by retail investor loss.
[5] BaFin (2025). “Turbos and CFDs: What Do the Numbers Show?”
75% of turbo warrant buyers lose money. Systematic approach addresses the key failure modes:
excessive leverage, poor barrier selection, and regime misalignment.
[6] Henderson, B. & Pearson, N. (2011). “The Dark Side of Financial
Innovation.” Journal of Financial Economics. Structured products systematically transfer
wealth from retail to issuers through complexity premium.
[7] UCLA Anderson Finance (2012). “Retail Structured Products and the
Overpricing Puzzle.” Multi-market evidence of persistent structured product mispricing.