<So, DAK, do you see this as another case of "cheap" to be expected to remain "cheap" ?>
Certainly could be... but that doesn't mean they aren't a 'buy'. If NGX performs and the warrants keep the same level of 'cheapness' you perform as expected.
MEANWHILE, you also have the chance that your cheap premium pays off... ie. company goes out of business, or soars.
< Or do you see warrants as having a value (Black-Scholes), quite apart from what the market says, making them a fair long term hold ?>
I see this as two questions... yes I see them as having a value [B/S is the standard technique employed by the street] and they are a CHEAP long term hold vs the stock based on that technique. The second part: 'quite apart from what the market says'
By this I assume you mean that perhaps the market may be correct and they [the warrants] aren't worth nearly what BS would imply??? This is the first thing an options trader would look at, why are these so cheap [expensive]?? In the expensive case... one throws BS out the window when he sees rabid buying that may be related to an event obviating the normal distribution assumptions of BS [buyout, special news like FDA meeting for a biotech, drill results at a very important mine, etc]. In the cheap case the 'bad' scenario could be a cash buy out 'in line' with current price, stock buybacks holding shares up, secondary offering creating lots of supply and holding good stock down for a period... anything that would stop the stock from moving.
Now, staying with the 'cheap' scenario, since that's what we're talking about, these events are relatively rare and don't 'hurt' as much as adverse events when you're short the 'overvalued' options and run into one of those events. On top of that, and BY FAR the most common reason for 'stupid cheapness' is simply supply/demand as it relates to parties who really NEED to sell options, or perceive such. In the case of listed options 2 events occur all the time:
1.) Large funds who simply want to augment return by a point of 2 [huge in the fund game] by selling out of the money options and saying 'take my stock at that price, I like that return'.... and they don't even LOOK at prices dictated by the V on the underlying stock, and sell options down to 'cheap' levels.
2.) Insiders who certainly don't give a rats ass about price and just want to unload SOMETHING [they often can't sell stock] and bank some coin. This was very common during the tech bubble, where stocks with historical V's in the 70's for examply saw option premiums available [to those who were awake] in the 40's.
What about Warrants? From my observation the cheap premium is benign from the buyers standpoint and simply stems from sellers who look at them as "extra's" they got during an underwriting and are blindly selling them to take in a little cash. Indeed, they 'look' like they may be a good sale often trading at a good % of the underlying!
My reason for accumulating:
I believe we are close [a few years?] to a major move in POG based on economics discussed by many here. If this is the case, OR IF I'M WRONG AND THE SECTOR PLUMETS, I win with the warrants vs the stocks BIG. If we muddle along and POG does little for the next 5 years the warrants can certainly be losers vs the stocks. And even in the loser case, if we get volatility and I trade these, I can easily be a winner of not lose nearly as much as invested partly because they are so cheap.
DAK |
