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The ABCs of Trading Warrants

Dudley Baker
Nov 02, 2005

We are going to keep this simple. Very simple, just like the ABCs.

A. What is a Warrant?
B. Why should investors be interested in Warrants?
C. How and Where to trade the Warrants?

A. A warrant is a security that gives you the right, but not the obligation to acquire the underlying common stock of a particular company at a specific price and expiring on a specific date in the future. Warrants are usually issued in connection with a financial arrangement or IPO of the company and are frequently referred to as an "equity kicker". Most warrants have a life of at least 2 years from the date of issuance and some have a life of up to 5 years. In essence, a warrant is a long-term call option on the common stock.

B. Investors should be interested in warrants because of the incredible Leverage they possess. Leverage is why we purchase warrants because we are looking to get more bang for our buck. As a general rule, if we looking for the common stock to double (100%), we could normally expect to make a return on the warrant of 200%. Actually, there are situations existing today where the potential returns are much greater.

We believe mining warrants should be included in "every" investors portfolio. Every investor, based on their level of risk tolerance, aggressiveness and bullish stance on the precious metals markets, must make the decision for themselves as to "how much" to allocate to warrants.

We would recommend a minimum allocation of 5% for very conservative investors up to a maximum of a 20% allocation for the most aggressive investors. Even for the most wildly bullish investors, you must remember that warrants are risky and that if the common stock of the company is trading below the exercise price on expiration day the warrants will expire worthless.

We recommend you spread your allocation out over at least 3 to 5 different companies and focus on companies in which the warrants have a minimum of 2 years or more before expiration. Give yourself TIME for this bull market to unfold. Consider taking advantage of the numerous companies with warrants that do not expire until 2008 thru 2010.

C. The warrants trade just like the common stocks. Those warrants trading on U. S. Exchanges are assigned a trading symbol and can be purchased using your online brokerage firm. Reality is most mining warrants are on Canadian companies. These warrants are also assigned an OTC symbol by the brokerage firms thus facilitating the trade in the United States. However, we have found that it is necessary to call your brokerage firm to place an order. While no doubt your commissions will be greater on these orders, we believe the incredible leverage possible offsets the small difference in commissions.

In summary, warrants are "long-term" call options offering the potential for incredible leverage, call be easily purchased thru your broker and should be included in "every" investors portfolio.

written Nov 1, 2005
Dudley Baker
Guadalajara/Ajijic, Mexico

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 they 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 more. Precious Metals Warrants do not make any specific recommendations in their service. They do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.

For those investors seeking more knowledge on warrants do visit the Learning Center at Precious Metals Warrants, where you will find much more information and examples to enhance your learning experience. You may also sign up for The Warrant Report free weekly email.

Disclaimer/Disclosure is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed in this report 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.

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