Yes, Andrew, but the "premium" has fallen to a historic low.
At one point not too many months ago the included premium in the warrant was as high as 12, now it's around 3. A premium of 3 on a two-year option? That seems a lot better to me than the LEAPs.
One way to look at today's closing price of 33 is that it's really around 30 bucks in the money already! And as far as the interest on margin being tax-deductible, so is this premium as part of your basis.
You made another point which seems logical enough on the face of it -- that in a declining market the warrant will be beat up much worse than the stock. But, if you include the stock on margin, AND if you go back and compare the price spread of the stock and the warrant in rising and falling markets, that's simply not true.
I've been watching INTC and INTCW for a while. As the stock rises, the spread widens with the warrant trailing behind. As the stock falls, the warrant falls slower and the spread narrows. If you compare the two, I don't think the spread has been wider within recent memory. THIS is the best time to buy the warrant. When the spread was narrow (and the implied premium high) it was the ideal time to short the warrant and buy the stock, thereby guaranteeing a profit equal to the premium, the premium by definition disappearing on warrant expiration. By the way, there are a ton of these warrants short. I tried back then, and was told they were not available to short. Apparently the institutions thought of this all on their own... Actually, if enough individual investors got interested in the warrants, there could be a little short squeeze that might drive up the premium so the warrant could out-perform the stock, at least until March of '98! That, of course, is strictly theoretical. On the other hand, there really aren't all that many warrants outstanding... |
