House Prices and Covered Warrants

I'm moving house this week!

I've sold my house at what I believe is the top of the market and I'm moving into a rented property.

I expect to buy another house in 2-3 years at prices around 15-20% cheaper than they are now.

As you can see, I think prices will fall sharply, particularly in London where they are simply too high.

I sold my London house for a lot more than I think it is really worth, and I've cashed in a profit of more than £300,000.

Obviously you may not want to take such drastic action as I have - but how do you gain exposure to rising or falling property prices without selling your own property?

One way - which I intend to use shortly - is covered warrants.

For some reason the moment you mention covered warrants most investors fall into a deep slumber. They just SOUND so boring!

But you can use covered warrants to trade on London house price movements.

As I believe London prices are going down a long way - I intend to buy some "put" (that is downbet) warrants soon.

These warrants should come with a big health warning - they are very volatile and you ought to make sure you learn everything about them before trading.

They're like shares in that there's a buy and sell price for each warrant.

To get live prices click on "warrants" on the ADVFN bar at the top of the page.

If you scroll down you will see "London house price warrants". Click on those and you can see the warrants available.

Actually the house price warrants aren't that volatile - they simply fall and rise slowly - and track the house price indices for London.

The prices on the left are the "call" warrants - they go up if prices go UP.

On the right hand side are the "put" warrants which go up if house prices go DOWN.

You can see the spread on put warrants is roughly 193p-198p.

However you can also see the warrants expire in August so there is no point in buying them now.

I will be waiting for the new batch of warrants that should be issued sometime in August and I expect to buy "Put" warrants for London house prices in September or October.

What's interesting is that if you don't want to take the drastic step and sell your house, if you think like me that prices are going down, you can use house price warrants as a "hedge"!

That is, keep your house but buy "put" house price warrants so you make some money if house prices go down.

If house prices carry on going up, well you still have the increase in your house price though you will lose on the warrants.

Of course you might disagree with me and think prices will rocket next year. Well, fine, you can buy the call warrants then!

Warrants are allowable in SIPPs - self-invested personal pensions. So if you have one, you can get some exposure to house prices. I intend to buy house price put warrants for my SIPP.

In fact, warrants are the only way right now to be able to "short" inside a SIPP - for example I could short the FTSE if I wanted.

There are loads of warrant prices for different shares. Also, you can trade them for indices, oil, and currencies.

I'll let you all know how I get on once I buy the "put" house price warrants soon and you can track my progress.

I do suggest strongly anyone thinking about buying covered warrants should make sure they know what they are doing before buying them.

Alpesh Patel has done an excellent tutorial for ADVFN users - you can find it on the right-hand side of the page when you click "warrants".

For those who enjoy debating house prices there is an excellent ADVFN bulletin board thread. It's called "UK house prices, the next bubble waiting to burst?"

Right, time to finish off packing and get ready to make money on house prices falling!