Let's assume IFLY does close above $10 for the 7 out of 10 consecutive days. When that happens and the warrants do get called, will
1. The warrants start losing value in terms of a ratio to the common?
2. The warrants will stay at their given ratio to the common? (e.g. if the common is $18, the warrants should be at about $11.75)
3. If the common keeps going up the warrants will go up as well?
4. Also, will the MMs possibly try to artificially hold down the common to just above $10 so they won't have to buy the warrants (which people will scurry to get out of) at a higher price (and then let the common zoom)?
I've got a nice position in the warrants so I will try to answer your questions. If I get anything wrong, I'm sure someone will jump in to correct me.
1. IF the warrants are called at that point (which is more likely than not but MIGHT NOT happen for various reasons), the warrants would have no reason to lose value, except for their small time premium. Rather their price should become more predictable and closely track Common - 6.25 = Warrant price.
2. IMO, exactly, more or less. (:>)
3. Yes, according to #1.
4. I think the market forces will keep the warrants priced according to the formula in #1, once the warrants are called.
When the warrants are actually called, there will be a certain time period allowed for conversion. I think this has been stated in a previous post, and if anyone remembers or finds it, please post. This length of this time period is very important for warrant holders because the longer it lasts, the greater the possibility for appreciation. The warrants will probably be traded up until the last day or two before the required conversion registration date. |
