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Technology Stocks : IFLY - travel sales on the web pure play
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To: Ron Kline who wrote (2666)11/30/1998 10:15:00 PM
From: SkyDart  Read Replies (1) of 4761
 
Good Question; And one that I had about AMEN warrants on 11/25.

Warrants theoretically should trade AT LEAST the intrinsic value, ie the difference between the market price and the strike price.

Call options almost always do; Right?

Yes. But why then did AMEN warrants that have a strike at 5 3/4 trade at 2 1/2 on Wednesday 11/25/98 when the stock closed at 10 1/2. By all rights they should have traded at 10 1/2 less 5 3/4 or 4 3/4. right?

Not necessarily. If we had a perfect arbitrage situation where an arbitrager stepped in and execised the warrant, then it would drive the warrant price UP to 4 3/4.

However, since so many people had purchased these warrants under one dollar one day prior, they were willing to part with their warrants for almost 1/2 price. And the MM's were willing to take the deal.

The next day the warrants caught up to theoretical value only at the end of the day when the stock of AMEN closed at 20+ and the warrant closed at 13+. The intrinsic value would have placed it at 14+, but it was much closer.

My advice would be to buy the warrant when it is underpriced and take advantage of the inequity rather than letting the MM's s---- you out of it.

You could apply this situation to IFLY, and exercise the warrant to get the intrinsic value out of it, rather than giving it away to the MM.

Good luck,

Jeff
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