Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
QE Forever: The Fed's Dramatic About-face - 21st Feb 19
Gold Technical Perspective – Why So Bullish? - 21st Feb 19
Sheffield "Mi Amigo" Memorial Fly Past at 8.45am on 22nd Feb 2019 - 20th Feb 19
Here’s The Real Reason You Stress About Money - 20th Feb 19
Five Online Marketing Predictions that will Matter in 2019 - 20th Feb 19
Has Gold Price Reached Upside Resistance Near $1340-1360? - 20th Feb 19
So Many Things are Not Confirming Stock Market Rally - 20th Feb 19
Forex Trading Management: The Importance of Being Prepared - 19th Feb 19
Gold Stocks are Following This Historical Template - 19th Feb 19
Here’s Why The Left’s New Economic Policies Are Just Stupid - 19th Feb 19
Should We Declare Emergency for Gold? - 19th Feb 19
Why Stock Traders Must Stay Optimistically Cautious Going Forward - 19th Feb 19
The Corporate Debt Bubble Is Strikingly Similar to the Subprime Mortgage Bubble - 18th Feb 19
Stacking The Next QE On Top Of A $4 Trillion Fed Floor - 18th Feb 19
Get ready for the Stock Market Breakout Pattern Setup II - 18th Feb 19
It's Blue Skies For The Stock Market As Far As The Eye Can See - 18th Feb 19
Stock Market Correction is Due - 18th Feb 19
Iran's Death Spiral -- 40 Years And Counting - 17 Feb 19
Venezuela's Opposition Is Playing With Fire - 17 Feb 19
Fed Chairman Deceives; Precious Metals Mine Supply Threatened - 17 Feb 19
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

Leverage Alternatives for Junior Mining Shares

Commodities / Options & Warrants May 27, 2008 - 10:09 PM GMT

By: Dudley_Baker

Commodities Investing in the junior mining shares over the last year or two has been considered risky at best and perhaps insanity by some investors. So, why would we be looking for leverage on the junior mining sector when the shares and the mining indices are hardly keeping up with the price of the bullion, gold or silver? Why not just purchase gold or silver? The simple answer is that many analysts believe the juniors will eventually break out and greatly out perform (as they have historically) and will reward investors beyond their dreams. Currently, there are signs of a bottom forming and thus it is a great time to discuss different forms of leverage for those investors willing to take on slightly more risk than merely purchasing the junior mining shares.


Many readers when they hear the word ‘leverage' immediately think of margin, futures, options on futures, etc. Yes, the opportunities are great, but most investors lack the education and perhaps more importantly, the psychology mindset to profitably utilize these forms of leverage.

There are other kinds of leverage which do not require margin and may be better suited to the majority of investors. We are talking about warrants, options and LEAPS, many of which are trading on the junior mining shares and we will briefly discuss the merits of each.

Warrants

Warrants are issued by a company usually in connection with a private placement, a financing arrangement or an initial public offering and many of the warrants issued will remain privately held and will never trade in the open marketplace.  Have you ever participated in a private placement of shares in your favorite mining company?  If so, you probably received some warrants in this private placement and a good chance you did not even understand what you received.

A warrant is a security (like an option) giving the holder the right, but not the obligation, to purchase the underlying stock at a specific price, within a specified time period. Sounds very much like a call option or LEAPS, doesn't it?  Very much so and we will discuss the differences more below.

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 possibly of such leverage the investor would buy the common stock.

Fortunately for investors, there are many warrants that trade on the Toronto Exchange and a few in the United States on the NYSE and the AMEX and many others are traded in the U.S. OTC market with assigned symbols.  As an individual investor, your objective, in our opinion, should be to trade the warrant, without an intention to exercise the warrant.

Currently there are many warrants trading with expiration dates out to the year 2012 (one out to 2017) and though warrants expiring within, say, 2 years, may possess great upside leverage and potential for gains, they also pose a greater risk.  Therefore, we personally suggest that investors focus their attention on those warrants which have a remaining life of at least 2 years before the expiration. Investors must remember, warrants, like options and LEAPS, can expire worthless.

Options and LEAPS

I will discuss options and LEAPS together as they are very similar and both are traded on the Chicago Board Option Exchange, commonly referred to as the CBOE .

Many investors have some knowledge of options as they have been traded for about 25 years and there is much advertising and information available on the internet and by brokerage firms.

Options and LEAPS (Long-term Equity AnticiPation Securities) give the holder the right, but not the obligation, to purchase the underlying security at a specific price and expiring on a specific date in the future. Again, a very similar definition as warrants.

Options and LEAPS are created or written by other investors and the underlying company receives none of the proceeds. Options, more specifically, call options usually have a life of 30 days, 60 days or perhaps 90 days while LEAPS frequently have a life of 1, 2 or 3 years, thus allowing investors much more time for the markets to move in their favor.

There are numerous options and LEAPS trading on the junior mining shares and for subscribers to our service, we provide a table so you can quickly see which companies have options, LEAPS and of course, warrants trading.

We always stress that the most important decision for investors is selecting the junior mining company or companies in which you want to invest. You must like the company, management, earnings prospects, etc. because if the company does not perform and the shares do not go up in price, neither will the warrants, options or LEAPS. The next question then becomes one of time. On your selected company or companies, which of them have warrants, options or LEAPS trading and what is the time remaining before expiration? To put it simply, will the warrants, options, or LEAPS give you the time necessary to allow this bull market in the junior mining shares to unfold?

If you are interested in more information on options or LEAPS, we suggest you visit, CBOE and if you would like more information on warrants we invite you to visit our learning center and website for much more detail, articles and examples of the use of warrants.

In closing, we suggest investors get on board with their favorite junior mining shares soon. Whether you decide to make use of the leverage alternatives and opportunities we have presented above is up to you, but when this party gets started it will be fabulous and one that you will not want to miss.

Dudley Pierce Baker
Guadalajara/Ajijic, México
Email: info@preciousmetalswarrants.com
Website: PreciousMetalsWarrants

Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges. As new warrants are listed for trading we alert you via an e-mail blast. You are provided with links to the companies' websites, links to quotes and charts, tips for placing orders and much, much more. We do not make any specific recommendations in our service. We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.

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