Why does the implied volatility of listed and OTC options affect the price of a warrant?

Implied volatility of a warrant varies according to various market factors and it has a close relationship with the implied volatility generated by OTC and listed options.

After an issuer sells a warrant, it generally needs to hedge against the risks arising from that issuance through different channels; two of those channels are OTC options and listed options. OTC options are options that are traded on a bilateral basis outside of the trading facilities provided by any exchange. Usually, the counterparties are institutional professional investors, such as investment banks. Listed options are those traded on a trading facility such as the Exchange.

If the implied volatility of an OTC option or a listed option is moving downward, the implied volatility of a related warrant may also move downward. On the contrary, if the implied volatility of an OTC option or a listed option is going upward, the implied volatility of the related warrant may also go upward. Therefore, variations in the implied volatility of an OTC option or a listed option may indicate a trend in the implied volatility of related warrants.