Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Here’s Why You Must Protect Yourself Outside the Financial System… - 22nd Nov 19
The Promise of AI - 22nd Nov 19
The Financial Implications of Bitcoin Casinos in Japan - 22nd Nov 19
FOMC Minutes Reveal an Important Shift That’s Key for Gold, Too - 22nd Nov 19
Adaptive Predictive Modeling Suggests Stock Market Weakness Into 2020 - 22nd Nov 19
Why You Should “Follow the Money” on The Yellow (and Silver) Brick Road - 22nd Nov 19
This Invisible Tech Stock Threatens Amazon with 800,000+ Online Stores - 21st Nov 19
Crude Oil Price Begins To Move Lower - 21st Nov 19
Cracks Spread in the Precious Metals Bullion Banks’ Price Management System - 21st Nov 19
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

Understanding Stock Warrants

InvestorEducation / Options & Warrants Jul 16, 2014 - 02:36 PM GMT

By: Dudley_Baker

InvestorEducation

If you don’t understand stock warrants, you are not alone. Very few of the professional newsletter writers and analysts understand them so why should you?

Allow me to give you a brief education on stock warrants in the following paragraphs and tell you exactly why you need this information.


Did you know that warrants have been in existence and trading for many decades but very few investors know about them? Why? Are warrants that difficult to understand? Of course not, it’s just that one needs to take some time to learn and understand this incredible investment vehicle.

To put this discussion in perspective, I would like to offer a quote from the past,
"...Common stock warrants turn in the most spectacular performance of any group of securities....the speculative potentialities of common stock warrants are enormous....
With potential profits and potential losses so great it is a source of wonder that so little understanding of the nature of common stock warrants exists not only among the investing 'public', who might be forgiven this sin, but even among the many 'professionals' of the business upon whom the 'public' depends for information and guidance."
Sidney Fried, 'The Speculative Merits of Common Stock Warrants', 1949.

Did you get that? 1949. As stated in the above opening paragraph, the public and professionals today are, for the most part, not aware of the enormous profit potential of warrants and thus absolutely nothing has changed since Sidney Fried's comments in 1949. 

In the 1960’s and 1970’s Sidney Fried had a service called, ‘The RHM Warrant Survey’ to which many investors subscribed and which was available only in hard copy. To the best of our knowledge, this service stopped in the late ‘70’s or early 80’s and very little information has been available since to investors, until recently.

Currently there are approximately 200 stock warrants trading on the NYSE, OTC, Toronto Exchange and Toronto Venture Exchange. There are stock warrants trading on virtually all industries and sectors, i.e., resource companies, financial services, gaming, autos, banking, biotechnology, restaurants, etc.

Approximately one-third of the stock warrants trading in today’s markets are on the common shares of the natural resource and commodities companies. As we are still in a bull market in this sector (believe it or not), investors are constantly looking for new ways to invest with the potential for great gains. These precious metals companies which have warrants trading give investors exposure to gold, silver, uranium, zinc, copper, cobalt, platinum, oil & gas, etc.

Stock warrants are but one of the many vehicles to consider along with gold bullion, gold coins, ETF’s, mutual funds, options, LEAPS and common shares of the mining companies.

So with this background, let me give you a brief introduction to warrants.

A warrant is a security (similar to a call option) giving the holder the right, but not the obligation, to purchase the underlying stock at a specific price and expiring on a specified date in the future. Sounds very much like a call option or LEAP, doesn’t it?

Stock warrants are issued by a company usually in connection with a private placement or a financing arrangement and many of the warrants issued will remain privately held and will never trade in the open marketplace but those that trade are the focus of our attention.

So, why the interest in warrants? The owner of the warrant receives none of the benefits of ownership of the common stock of a company. He cannot vote, and he does not receive any cash dividends. Therefore, why would an investor want to buy an option (warrant) to buy something instead of buying the thing itself?

The essence of the answer is that the anticipated gain on the warrant must be greater than the anticipated gain on the common stock. Leverage, or at least potential leverage, is the prime reason an investor would be interested in warrants. This more rapid growth in the value of the warrant relative to the common stock is called leverage. Without this possibility of such leverage the investor would buy the common stock. A good rule of thumb is to seek out those stock warrants having the potential to greatly outperform the shares with a desired leverage of 2 to 1 or better.

Currently there are many warrants trading with expiration dates out to the year 2017 (one out to 2030) and though warrants expiring within, say, two years, may possess great upside leverage and potential for gains, they also pose a greater risk. Therefore, we personally suggest that investor’s focus their attention on those warrants that have a remaining life of at least two years before their expiration.

As with any investment each investor must decide how much of one’s portfolio to allocate to different sectors, different shares, ETF’s, mutual funds, gold bullion, etc. 

Even though we personally view ‘long-term warrants’ as investments (as opposed to speculation), an allocation of 10% to 15% maximum of your portfolio would be a reasonable allocation of your total dollars to this investment vehicle.

To summarize, an investor may wish to purchase a stock warrant that is the option (the right) to purchase the common stock of a company. Investor’s may prefer to purchase the warrant instead of the common stock because the warrant offers more potential gain, that is, the warrant offers the investor leverage. Using a portfolio allocation of 10% - 15% and buying long-term warrants on some of your favorite shares, you are now in the position to capture some incredible potential gains as this bull market in the natural resource and commodity sectors reasserts itself over the next two to three years.

For those investors seeking more knowledge on warrants we invite you to sign up for our free emails and visit our Learning Center where we provide you much more information and examples to enhance your learning experience.

July 16, 2014
Dudley Pierce Baker
Founder – Editor
Guadalajara – Ajijic, Mexico
Website: www.CommonStockWarrants.com
Email: support@CommonStockWarrants.com
Facebook: http://Facebook.com/CommonStockWarrants

Disclosure: Neither Dudley Pierce Baker nor CommonStockWarrants.com is an investment advisor and any reference to specific securities does not constitute a recommendation thereof. CommonStockWarrants.com is an online newsletter providing complete details on all stock warrants trading in the United States and Canada. The information and opinions expressed should not be construed as a solicitation to buy and securities mentioned in this service.

Disclaimer/Disclosure Statement:PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

Dudley Pierce Baker Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules