Koan and Ralph Emerson's Far Right and Far Left Whacked Out Message Board

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Politics : Koan and Ralph Emerson's Far Right and Far Left Whacked Out

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From: E. Charters	2/27/2007 10:01:09 PM
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Well he does have a point in that the chance of making money is the same in warrants, and the chance of losing is equal too. You can lose more in the warrant, but the gain is more, so it evens out.. but the upside leverage is something to look at. Is it balanced equally? No, the reward positively is very large, the loss is always only to 0 and rarely so if you plan right. The reward is much greater in warrants given a positive move in the stock. So playing warrants pays off against the losing side with better odds finally. You lose a bit more but win much more. That is a no brainer. So koan's aver that the warrant controls more money is correct. The down side is the time to live. But the BS equation covers that. The downside is everyone is pricing by black scholes, so it evens out. Especially in options. The advantage is balanced against the sure decline value over time of the warrant, against the much more sure base of price of the stock. Although on paper the warrant versus stock thing does not seem to convey an advantage, the risk reward equation favours the warrant. In other words it is better to put a dollar down against ten then a dollar down against 1, even it the chances are the same for winning or losing and the dollar against ten has a time to live that is finite. So does your cash die by interest and the longer term sequestration of capital if you tie it up in stock. Warrants are primarily a hedging tool to the professional.

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