posted
Let me ask you what I'm missing here. Must be too simple.
Okay so a company has their common stock, then some have a W at the end of their symbol where you can trade their warrants. I found a stock where the warrants can be exercised any time up to December 2009 at $18.50
The stock is at $20. Now, if I buy these warrants currently at about .15 and buy $100 worth of them thats 666 shares. Let's say the stock goes to like $25 and I exercise, wouldn't I make something like ($25-18.50)*666 minus 666(.14) and commission fees= around $4000.
And worse case if the warrants are worth nothing I lose $100.
How much does Scottrade or other brokers charge to exercise warrants. Is this too simple?
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posted
They are very similar to call options. Don't assume this to be true because I am not positive but each warrant represents 100 shares of the underlying security. Therefore the .15 price is actually 15 bucks… So you could only buy 6 contracts thus only make like 40 bucks! I think that is the answer to your question.
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quote:Originally posted by NYSE Trader: They are very similar to call options. Don't assume this to be true because I am not positive but each warrant represents 100 shares of the underlying security. Therefore the .15 price is actually 15 bucks… So you could only buy 6 contracts thus only make like 40 bucks! I think that is the answer to your question.
If I buy 6 contracts or 6 shares of the warrant and they are = to 100 shares then I still would have 600 shares I could exerice no? What am I missing here.
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posted
Well math isnt really changed, point is if you are saying 6 warrants= 100 common shares per warrant thats still 600shares exercised at $18.50 with the current price at $20.00
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I thikn there's a part that you are missing. You have to have the money to excercize the options. Like if you bought $100 worth of options at .15, you're correct that you'd have 666 warrants then you'd have to have $12,321 to excercize all of the warrants at 18.50. Then you'd have the stock, and if you could sell them for $20, you should make $13,320. So $13,320 - $12,321 - $100 for the warrants - commission 4 times - any other broker fees.
So you'd make about $800 on $12,500, or about 6.5%.
Then of course there is the risk that the price would drop below $20 in the time it took to excersize the warrant, get all the paperwork done, and get the stock sold.
Like someone else said, why not give it a shot and see what happens. But remember, you wouldn't just be out the $100, you'd potentially be out the $12,000 if for some reason there were no buyers for the stock.
Make sense?
And by the way, i have no experience in this, but that is what my instinct tells me.
So anyway, it may not be worth the amount of money that you'd be risking, and the time and effort taht it may take.
In closing, I'd say you probably couldn't "get rich on stock warrants" because you have to have a lot of money and time to do it, and I'm not sure how often a situation would come up wher ethe warrants allow an arbitrage opportunity.
quote:Originally posted by PCola77: St22, here's my take:
I thikn there's a part that you are missing. You have to have the money to excercize the options. Like if you bought $100 worth of options at .15, you're correct that you'd have 666 warrants then you'd have to have $12,321 to excercize all of the warrants at 18.50. Then you'd have the stock, and if you could sell them for $20, you should make $13,320. So $13,320 - $12,321 - $100 for the warrants - commission 4 times - any other broker fees.
So you'd make about $800 on $12,500, or about 6.5%.
Then of course there is the risk that the price would drop below $20 in the time it took to excersize the warrant, get all the paperwork done, and get the stock sold.
Like someone else said, why not give it a shot and see what happens. But remember, you wouldn't just be out the $100, you'd potentially be out the $12,000 if for some reason there were no buyers for the stock.
Make sense?
And by the way, i have no experience in this, but that is what my instinct tells me.
So anyway, it may not be worth the amount of money that you'd be risking, and the time and effort taht it may take.
In closing, I'd say you probably couldn't "get rich on stock warrants" because you have to have a lot of money and time to do it, and I'm not sure how often a situation would come up wher ethe warrants allow an arbitrage opportunity.
But let us know what you decide.
Why exercise? If the price goes up, sell the warrants.. they'll be worth more.
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