Tony,
I do not want to perpetuate this warrant vs. stock-on-margin debate, really, but I must make the comment that you appear to be treating it as an either-or decision. You are dismissing out of hand the possibility of buying the warrants *on margin*. That is unfortunate, because many of us have chosen to go precisely that route. Whether or not you think it is a wise move from a risk management point of view, you must admit that it is a third choice for Ligand-bullish investors. In fact, the only substantive difference between a warrant and a LEAP call option is the fact that the former *is* marginable. It is an important distinction.
Speaking for myself, I am fully aware of the intricacies of warrants and/or options, and am comfortable with the increased risk I have assumed. Your analysis of the implied interest rate of holding the warrants, while arithmetically correct, does not use the appropriate analysis model, in my view. Various options pricing models will confirm that the warrants are priced approximately fairly, vis-a-vis the underlying at current levels.
Which decision an investor chooses to make (long or short, with or without margin, warrant or stock) is a matter of individual preference and risk aversion.
Good luck,
RB |
