Trading Warrants
What are warrants and how to trade them.
Warrants are rights to buy stocks at a certain price until a certain date. They are very similar to options in that they can be exercised to obtain common shares at a fixed price. The difference with warrants is that they have a time limit that can range from 2 years to even more than 6 years. These can be bought and sold or traded for common shares. This process does add dilution to the stock but it does provide the company with needed funds when they are first issued. Warrants are like little sweeteners that are added to those who put out the money on financing. It can be viewed as a risk enhancer or interest.
Warrants when first issued will have a hold on them for a set period, say 6 months then after that they can be put out for sale to be traded. Each issue of warrants has an expirery date and an exercise price. An example would be a company has a stock price of $1.00. The warrants are say good for 5 years and have an exercise price of $3.00. If the stock reaches say $5.00 before the 5 years is up, these warrants will allow you to buy the above stock for $3.00 thereby giving a two dollar profit. The warrant itself maybe trading by this time for close to $4.00 so if you had bought them for $1.00 you would have gained $3.00 profit whereas with the common stock you would have paid $3.00 and only be up $2.00 at this point.
The above example is one of the pros with warrants. Now with the cons.
Due to the time limit as say the five years comes close the warrants loose there appeal if the stock price is not performing. Let's say the stock price that was $3.00 at the time of issue is now $1.00. Why buy the warrants that have a $1.00 exercise price with little time left when you can buy the common stock with unlimited time.
I would think if the stock had fallen to $1.00 the warrants would be trading for less than .10 cents by this time.
So you will see that there is great leverage both ways. It all depends on the stock, it's sector, and of course time. This is one case where timing is everything.
Penny Mining Stocks With Warrants
Below is a list of stocks that offer warrants that we feel are of good value. A part of that vlaue lies in the fact the sometimes longer time periods are better. We also look into the viabilty of each company. Remember that trading in warrants does involve risk. Be sure to do your DD on each before trading.
Note. These prices are marked as of Oct. 27 2009.
- Breakwater - BWR.WT.A Exercise $0.12 April 2014
- Claude Res. - CRJ.WT Exercise $1.60 - May 2013
- ECU Silver - ECU.WT Exercise $0.95 Feb. 2014
- Endeavour Silver - EDR.WT Exercise $3.60 Oct. 2011
- First Majestic - FR.WT.B Exercise $3.50 Mar. 2011
- Terrane Metals - TRX.WT Exercise $0.85 June 2012
- US Silver - USA.WT Exercise $0.155 July 2014
- Western Coal WTN.WT Exercise $3.25 June 2012
