I'd like to know anyone else's strategy on use of the warrants. A lot of "In the money" comments, but I don't know what that means. The higher the value of the warrants goes the higher the price of KMI needs to be to maximize profit on using the warrants to buy KMI. To me, a warrany at $6.00 means price of KMI at least $46 to break out even on potential.
I'd like to know what you people have in mind for your warrants. Selling them or using them. Thanks
The warrants are under water now. The warrants are currently trading at $5.63 which means KMI must be at $45.63 when the warrants become due just to break even. Of course, you could sell the warrants if KMI spikes but unfortunately KMI and the rest of the MLP sector are getting hammered. GLTA
Generally you do not exercise them, you sell them of at the last high before expiration. Probably the analyst meeting in January 2017. The Warrants have a time value, break even on a $6.00 Warrant is $46.00 in 2017.
Sumflow on May. 19 OptionMonster’s monitoring systems detected the purchase of more than 5,700 December 45 new call positions. So collectively somebody is betting about $285,000.00 that $45.00 KMI will happen before Christmas 2013, Warrants have until 2017.
I own KMI and the Warrants. I never have thought of converting the warrants. As the big factor in favor of the warrants is that of TIME. The one-year anniversary just passed with four more years remaining for growth in the KMI pps and warrant price to follow. Think of owning the $6 warrant as owning a $41 share of KMI with potential for the same gain. I will sell my warrants after year 3.5-4, with expectation of common stock being in the 60's and the warrants worth around $25. Time is in warrant holder's favor.
I think the only good reason for hanging on to the warrants and converting them is that *I believe* your holding period on the KMI shares will date back to your original warrant acquisition, so instead of paying cap gains tax on the warrant sale, it will be embedded in your KMI position. But someone please correct me if I'm mistaken in that.
You have interest rates working against you. In all likelihood interest rates will rise before 2014 which will smack both the GPs and the LPs in the MLP sector. . The idea that you have "time" does not take into account the effect of interest rates on GPs like KMI. Personally, I'd take a pass on the KMI warrants IMHO).
Jimbo, interesting scenario you have mapped out; however, in 3-4 years with KMI, at 65 let's say, U may want to convert @ 40, still having the 25 point gain(less warrent cost), AND U own a stock prolly paying a $3.25 dividend for a 5% yield. Yes, who knows what rates will be in 4 years? The point is one can preserve the 25 point gain by converting and owning a great stock and enjoy a nice yield to boot. The warrents expire in 4 years, but KMI will continue on and hopefully grow PPS and divdends.
I think that the type of investor who only holds the warrants, and doesn't have a long history with Kinder or its acquired company, El Paso, is not going to commit a huge amount of capital exercising the warrants and owning KMI common stock. Selling them at the highest price that comes the earliest would probably be the plan. If the Dow went up to 18,000 or 19,000 in three years, and then went thru a severe correction in the 4th year, selling the warrants in the 3rd year would most likely be the best course of action. Don't wait for that fourth year.
In the money means that the underlying common stock trades above the warrant strike price. At this point, the value of the warrants is due to potential future price rises in KMI stock. It won't pay to buy the warrants at $6 each and exercise them for the stock right now. But a lot of us warrant holders got our warrants "for free" in the El Paso buyout. So any price we get is gravy.
The "pool" of warrants continues to shrink as KMI purchases and retires them. The warrants when issued had a nominal value of about $1. They were issued to the El Paso share holders as a sweetner to get the deal done and keep the presiding judge in the lawsuit from staying the deal.
What I've learned in the year since EP about Rich Kinder tells me he despises having these warrants show up in the diluted earnings report.
Check out the KMI insider selling - none
I thought the real money was made a couple of months ago and sold some but have since bought lots more.
My strategy is to hold the warrants while writing OTM calls on the KMI stock, rolling forward and up to juice my returns.
At some point this may all turn to dust but for now "The pipes (KMI infrastructure) are Golden!
What's not to like about KMI and a guy like Rich Kinder!!!
JMHO - Good Luck.
Some of us bought the warrants in the $2.50-$3 range which gives us a cost of $43 if converted into the stock. If the stock trades at $50-$55, as some believe, in the next 4 years, purchasing at $40+warrant($43)makes alot of sense and profit. Just think what that juicy dividend might be in a couple of years.