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Strategies & Market Trends : 50% Gains Investing
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To: Elroy who wrote (117951)2/18/2014 11:28:46 PM
From: BiomavenRead Replies (1) of 118717
 
The person who is short the warrant (because they were short the Common when the warrant got issued) has to pony up shares if someone pays them $8.50. It's just like writing an uncovered call that is in the money and gets exercised. The short can either buy the shares on the open market or borrow them (increasing their short position).

There's no way for them to cover their short warrant position until then because the warrants don't trade. So it just shows up in their account as a short position. If your (long) shares had been lent out, then the warrant position shown in your account is not one issued by the company; rather it is the one "borrowed" by the short.

The same thing as with the exercise happens when a dividend-paying company declares a dividend. Anyone short the shares also owes the dividend (called a substitute payment).

These warrants are weird creatures. If the company wanted to, and the stock was trading at under $8.50 in September, they could just make them go away by declaring the registration statement effective. If the stock stayed under $8.50 for the following 30 days they would essentially expire worthless. So it's hard to put a value on them - to some extent it's at the discretion of the company. (If I were asked to value them today for financial accounting purposes I'd be scratching my head how to do it.)

Peter
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