Identifier: C4T7L4 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Calculate executable spread cost for the actual quantity. 2. Separate market-making from a payment guarantee. 3. Stress interrupted trading and issuer default.

Prerequisite: C4T7L3.

All prices, ratios, term sheets, credit recoveries and cash dates below are hypothetical teaching assumptions, not current offers. Amounts are TRY unless explicitly marked otherwise. The investor is a hypothetical Turkey-resident individual acting outside a business; all results are before actual tax, which requires issue, acquisition, income-year and legal-status checks. No current eligibility or live listing is asserted.

Mechanics

A market maker supports trading under an exchange framework; it is not a promise to buy any quantity at a model mark or pay the issuer’s obligations after default. The checked Borsa market-functioning rules describe continuous market making for warrants and certificates and suspension when the instrument has no market maker. Issue-level exceptions, interruptions and obligations must be read directly. A screen quote’s size and timestamp matter as much as its price. The issuer and market maker may be related but perform different contractual roles.

Price and return drivers

Immediate round-trip cost uses purchase ask and sale bid for the actual depth, plus charges. A theoretical value is neither a bid nor a credit guarantee. For multiple depth levels, sum executed quantity ×price separately. Credit stress is a scenario about the issuer’s promised payment and legal recovery, not a modification of the underlying option’s intrinsic formula. Recovery percentages here are hypothetical conditional assumptions, not predicted probabilities or current ratings.

Worked case

Buy1000 synthetic warrants at ask2; executable bid1.80 for1000. Total round-trip charges20 give immediate net1800−2000−20=−220. Increase quantity to5000, with only1000 bid at1.80 and4000 at1.50: sale proceeds1800+6000=7800; original ask cash10000 and charges40 give−2240. Using the best bid for all5000 would overstate proceeds by1200. Depth is supplied for this exercise and makes no claim about current local liquidity.

Adverse case

For the1000-warrant position, declare r0.1,K100,European cash settlement, original price2 and costs20. At expiryS80,100,140 under full issuer performance, net is−2020,−2020,+1980. If issuer default permits only a hypothetical25% recovery of the S140 contractual4000 claim, cash1000 gives net−1020; the claim’s legal priority and recovery base must be verified. Before expiry, a trading interruption can leave no executable bid even while a model value rises. An unavailable bid cannot be recorded as zero-value execution or as a guaranteed later exit.

Practical use

Check current market-maker status, quote size and interruption notices independently of issuer recourse. A required exit cannot be funded from an indicative mark.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use a limit price and a size-aware cash estimate, and verify the market maker and issuer separately. Decline when a required spending date depends on a bid that is absent or unsupported by depth. Do not assume a trading suspension changes the contractual final fixing; the issue’s disruption provisions govern. Avoid treating a rating or exchange approval as insurance. A simpler vehicle with less issuer-specific or exit risk may better fit a liquidity requirement.

Practice and references

Exercise: buy2000 at ask1.20. Solution: Closing depth is500 at1.10 and1500 at0.90; total fees30. Proceeds550+1350=1900; cost2400; net−530. A screen best bid1.10 applied to all2000 would imply2200, overstating proceeds300. The quote is an observable opportunity for its stated size, not a valuation of the whole holding.

Takeaway: Market-making duties, size-aware bids and issuer credit are separate checks; none substitutes for the others. Reference links: product card, formula; glossary: Market maker; Executable depth; Issuer default. Next: C4T7L5. Topic test.

Sources: Borsa Istanbul: Equity Market Functioning (retrieved 2026-10-26; Continuous trading with market making; warrants and certificates). SPK: Warrants and Investment Institution Certificates Communique VII-128.3 (retrieved 2026-10-26; Articles 3, 4, 6, 7, 13 and 15). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide