Selling warrants will only add to the dilution of the common stock. If, they reverse split would it better to own the warrant or the common. From my eyes one would be better buying the warrants. What do you guys think? I figured the common would hit 1.25 today.
Only makes sense to buy the warrant if you expect the stock to be over $2.00 when the warrant expires. At that price the gains for the stock and warrant are about the same. It would be almost a double for the stock from the current price and also almost a double for the warrant (warrant will be worth about $1 if the stock is worth $2 on the expiration date).
At a stock price of $1.50 on the expiration date you get a nice gain on the stock and a small loss on the warrant (only worth 50 cents with a current price of 56 cents).
A spike to $3 and higher would show a much better return on the warrant then the stock.
Personally I can see the stock easily going to $2 in 2013 with a continuation of the gold bull, but $3 is IMO a stretch for 2013
Hi An opportunity to understand on a simple level the valuation of warrants initially with an overvalued warrant and then the opposite as both expire in November 2013
Overvalued selling at 56 cents exercise price 1.00 common selling at 1.12
Choice buy 10000 common 1.12 or invest equal dollar amounts in warrant
Cost 10000 common 11200 buy 20000 warrants 56 cents 11200
Common doubles between now and November 2013 selling at 2,25 profit owning common 11200
Warrant value with common at 2,25 equals 1.25 profit owning 20000 warrants at 56 cents 13800
Leverage 1.23 very low Not much difference 13800 versus 11200
Now undervalued warrant ARR selling at 3.5 cents exercise price 11.00 common selling at 7.50
Choice buy 10000 common 7.50 cost 7500 buy 215000 warrants 3.5 cents 7500
Common doubles between now and November 2013 selling at 15.00 profit owning common 7500
Warrant value with common at 15.00 equals 4.00 profit owning 215000 warrants 3.965 or 852000
Leverage 113.6 very high Large difference 852000 versus 7500
Which sounds like a better risk reward 56cents or 3.5 cents
Take a look and decide which looks like less risk and higher potential reward and Beyond this simple explanation more benefits can occur which can be shown if management decides to reduce exercise price or extend the expiration date of warrants
Good luck to all