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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe
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To: Dominick who wrote (798)2/28/2003 11:41:54 AM
From: tyc:>   of 1064
 
I too am running Windows 98 and I think that DOS with Qbasic is on the disc but must be deliberately installed.(My son looks after my computer).

The MAJOR consideration re warrants is that they are only as good as their underlying. In other words they are as good as the common stock. I would not be concerned about holding them, but I would be careful not to pay too much.

Theta has nothing to do with relative price movement. It is Delta that measures that. Theta is the rate at which the time premium erodes.

Getting back to delta. The theoretical "warrant price curves" I mentioned, might indicate that the warrants have a delta of (say) .46. Buying 1,000 warrants will therefore substitute for the delta of 460 shares. (460 shares might cost $875, while the 1,000 4-5 year warrants might cost only $675).

An interesting point I read recently; the warrant price curve emulates the trading pattern of "momentum traders", increasing delta automatically if prices are rising and reducing delta when they are falling. This emulates buying more stock when it's going up and selling some when it's falling. The price one has to pay for this "insurance" is the time premium, i.e. theta. And theta appears to be very low !
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