Intel Warrants? Buy, Sell or Hold? Message Board

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Technology Stocks : Intel Warrants? Buy, Sell or Hold?

INTC 41.35

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3:59 PM EDT

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From: Andrew Chow	5/17/1996 10:20:00 AM
	of 36

The Intel warrants (INTCW) are basically call options on INTC stock with a $41.75 strike and 3/14/98 excercise date. There are some eariler excercise dates, but you'd never want to use them, because of the financing advantage of the call option. From a corporate finance standpoint the warrants are also different than options, since the company gets the excercise price and issues new stock. But the warrant issue size is small relative to the shares outstanding so you can think of INTCW as an option. Since an option is basically a leveraged exposure to the stock, $100 invested in the option will tend to outperform $100 in the stock in a bull market and underperform the stock in a bear market. From a relative valuation standpoint it is not correct to compare an option with a stock straight up. The option is equivalent to buying the stock and then borrowing more money (ie. margin) and investing it in the stock. On that basis INTCW is rich. A measure of relative value for options is implied volatility. Today INTCW trades with a 37.3% implied vol. Jan 98 40 calls trade with an implied vol of about 30%, making them the cheaper way to leverage INTC exposure. For individuals that must pay taxes, its even cheaper to leverage INTC by buying on margin, since your borrowing costs are tax-deductible immediately at the ordinary income rate, instead of later at the capital gains tax rate with options. INTCW is a retail suckers bet. If you like INTC (and I do), you're better off buying the stock. If you're crazy bullish on INTC, you're better off buying a bunch of INTC on margin. If you're crazy bullish on Intel and can't margin (ex. 401(k) account), you're better off buying the Jan 98 calls.

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