This depends on the type of warrant you buy (call versus put). The following examples deal with either a call or put warrant linked to a local stock.
(a) Call warrant - At the expiry of a call warrant over a local stock, if the 5-day average closing price of the underlying stock before the expiry date is:
i. higher than the warrant's exercise price, the warrant is "in-the-money" and will be exercised automatically at expiry. In that case, you will receive a cash payment calculated by reference to the positive difference between that 5-day average closing price and the exercise price of the call warrant, adjusted by the entitlement ratio; or
ii. equal to or lower than its exercise price, the warrant is “at-the-money” or “out-of-the money”, respectively, and will become worthless.
(b) Put warrant - At the expiry of a put warrant over a local stock, if the 5-day average closing price of the underlying stock before the expiry date is:
i. lower than its exercise price, the warrant is "in-the-money" and will be exercised automatically at expiry. In that case, you will receive a cash payment calculated by reference to the positive difference between the exercise price and that 5-day average closing price, adjusted by the entitlement ratio; or
ii. equal to or higher than its exercise price, the warrant is “at-the-money” or “out-of-the money”, respectively, and will become worthless.
5-day average closing price: the average of the closing prices of the underlying stock quoted on each of the 5 business days falling immediately before the expiry date of a derivative warrant. This price is used to compare against the exercise price of a derivative warrant to determine the cash settlement amount at expiry.