The ABCs of Trading Warrants
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
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
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 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
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
free weekly email.
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