(FORTUNE Magazine) – The dollar may stay down for a while, but that's just when long-term speculators sniff opportunity. Some are buying currency exchange warrants, which are the equivalent of bite-size call options on the dollar's comeback. One warrant gives the holder the right to buy 50 U.S. dollars for a set number of Japanese yen or German marks. If the dollar rebounds during the life of the warrants, the payoff can be phenomenal. Currency warrants were introduced by a group of Bear Stearns rocket scientists, who in 1987 sought a new source of cash for debt-issuing corporations. An issuer of currency warrants in effect buys a foreign- exchange option wholesale and sells it retail. Before selling warrants, the company hedges by ordering a big-denomination foreign-exchange option from an option writer. The money from the sale of the warrants, which often appear in prospectuses along with debt issues, more than covers the cost of the hedge, leaving a profit. Compared with the volume of foreign exchange options in the financial markets, currency warrants are but a speck in the firmament. Capital-seeking companies have sired only 16 issues so far. But for dabblers in the dollar, currency warrants may be the safest speculative instrument. They give you far more leverage than buying actual foreign currency. Unlike foreign exchange options, which trade at a big bid-and-ask spread over the counter, the warrants trade on the American Stock Exchange at firm prices. Currency warrants, furthermore, have lifetimes of three to five years; retail options run for no more than a year. ''I think the dollar is going to rise, but I don't know if it's going to happen in six months or 18 months or 24 months,'' says George Putnam III, a fan of the warrants and editor of the Turnaround Letter, a Boston investment guide. ''I like to have the flexibility of a long maturity.'' A relatively small recovery in the dollar can put the warrants in orbit. As the table above shows, a 25% rise would boost the value of several warrants more than 300%. When the dollar dips, of course, the warrants can nose-dive. How to place a bet? You might, for example, ask your broker to buy some of Citicorp's yen warrants expiring in 1993, recently trading at $2.88. The warrants can be exercised when the dollar rises to 132.9 yen. If the greenback rose 25% to 162.2 yen, the warrant would save you 29.3 yen per dollar and would be worth $9.03 -- an appreciation of 214% on your investment. In that happy event, you might want to cash in your warrants before expiration. But you must redeem at least 2,000 at a time, and it might be better to simply sell them. Sitting tight could prove a mistake. If the dollar later dips below the exercise price and stays there until the expiration date, the warrants become worthless. For those who dread any downside, the Student Loan Marketing Association offers damage control. Sallie Mae guarantees holders of its February 1993 yen warrants the full $9.25 issue price on expiration. William Staton, publisher of Staton's Stock Market Advisory in Charlotte, North Carolina, advises putting up to 5% of your portfolio in currency warrants. But Sidney Fried, publisher of the RHM Survey in Glen Cove, New York, counsels waiting until the dollar falls and the warrants become even cheaper.

CHART: NOT AVAILABLE CREDIT: SOURCES: NEW GENERATION INVESTMENTS; BEAR STEARNS CAPTION: CURRENCY CASINO These warrants could soar if the dollar gains favor with buyers like the ones in Citicorp's New York trading room.