Vector 1, In continuing the pursuit of my thesis, let me prove that warrant is less risky. At expiration, the worst the warrant can be is $7.12 less than the stock, because it is deliverable into the stock for $7.12. If one buys the warrant now, at $6.12 less than the stock, which has been easily accomplished recently, in fact, I have bought it for $ 6.375 under relatively recently, he knows he can deliver it plus $7.12 & get the stock. However, he is not obliged to do so. If the stock were to go under $7.12 at expiration, the warrant holder would choose not to exercise the warrant, but instead buy the stock for whatever price under $7.12, the stock could be bought at. Therefore, it is an observable fact that,if the stock declines to zero, the warrant holder who buys at a $6.12 discount to the stock, loses $6.12 less than the stockholder. If the stock is at $1.00, the warrant holder is $5.12 better off than the stockholder, if $2.00, then $4.12 better off, if $3.00, then $3.12 better off, if $4.00, then $2.12 better off, if $5.00, then $1.12 better off, if $6.00, then break even, if $7.00, then the warrant holder is $1.00 worse off. But, if the account is on margin, as your account illustrated here is, he will save the margin interest on the $6.12 that he didn't have to put up until expiration, when he will add another dollar to it to make $7.12. That margin interest saved, as your trusty accounting servant will attest, should equal or exceed the $1.00 maximum risk you have at the current differential between the stock & the warrants. To summarize, at best, the warrants are $6.12 less risky than the stock. At worst, in your margin account, they will lose $1.00 on expiration, but save that much in margin interest over a position in the stock. Therefore, THEY HAVE NO RISK compared to the stock, & may be as much as a $6.12 better investment than the stock.
If you then claim that they have a liquidity risk, my answer is that the short sale of the stock vs. the warrants is the solution to that. Would I lie to you? |
