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Strategies & Market Trends : Dave Gore's Trades That Make Sense -- Ignore unavailable to you. Want to Upgrade?

To: hotlinktuna who wrote (5963)	4/19/2002 7:55:17 PM
From: Bruce A. Brotnov	Read Replies (1) \| Respond to of 16631

TUNA - seems like you were the first to mention SMID, but for those who have never bought warrants, here is the reason I like them over common (with a little more risk). Assume we have $8400 to buy an equal amount yesterday: That is 6000 SMIDW @ 1.40 and 4200 SMID @ 2.00 and since they are running at par (0.60 differential) lets take gains today and approximate closing of 1.60 and 2.20. For the common SMID: That is 10% gain or $840. net not bad But for warrant SMIDW: That is 14.2% gain or $1200. Let's assume the par continues and they go up $1 to $3 and $2.40 for the warrant. Again for the same investment of $8400. we get the following: Common for $1 gain is 50% or $4200. Warrant for $1 gain is 71.4% or $6000. I think you see why I would rather have the extra $1800. for the identical investment on basically the same security. Not very often will you find a warrant running one for one with the common as there is usually a premium price for most of the run. Yesterday I bought the SMIDW warrant at 1.38 and of course enjoyed seeing the run today. It don't always work out so nicely, but you might find this information useful someday in case you have never considered buying warrants before. However, if a company calls early then the warrants and common normally both drop during the standard 30 day call period. If you think SMID will continue to go up it could still be a beneficial to buy more warrants than the common. One final thought is the call. You have 30 days to decide to simply trade at whatever price you can get or your broker will exchange them for you. In the previous example you could buy the common for $8400 x .60 or 5,040. regardless of the price of the common at the time as I understand the terms from John. (1 warrant + .60 = 1 common). You can also trade 1/2 for example if cash is a little low and buy the other half, the choices are yours as the company normally picks up the conversion cost commissions based on my experience. The point of this example is to illustrate investing in warrants in general using the example of SMID. (The terms are second hand so I don't guarantee their accuracy.) Bruce