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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (15965)	12/27/2002 5:27:25 PM
From: Don Earl	Read Replies (1) \| Respond to of 78645

Timba, <<<You keep talking about options when speaking of these warrants>>>> If it looks like a duck..... Anyhow, whether you call it a warrant or an option, it's still a contract to purchase stock at a specified price, within a specified period of time. Your point that leaps don't go out that far, is at least in part the point I was trying to make. There isn't a market for contracts that go out that far, and the reason being there's a break point where it stops making sense to purchase options at a price that becomes a large percentage of purchasing the stock outright. The market seems to like the shorter dated contracts, and the farther out you go, the smaller the open interest. I still think you're looking at your trade from the wrong perspective. For all practical purposes it's an option play at roughly $3 per share on the new common. There probably won't be a market for the warrants, so the only way to realize a profit is to be able to exercise the contracts at a price at least $3 above the strike. As I see it, whatever analysis you apply to the trade would have to justify a reason to believe the stock will be undervalued at that level. Any analysis you do will automatically be flawed because of the lack of hard numbers to plug into the formula. You can make some ballpark estimates going off the numbers included in the filings, but the only thing you know for sure is those estimates have not been market tested. Whatever formula you end up using has to justify a trading range above your strike for the trade to make sense. Option play is tricky enough without throwing a bunch of variables into the equation, but let's say your strike is the 125% number you've been using, of the $30 price included in the filings, that gives your strike at $37.50, plus the $3 you paid for the contracts, or a $40.50 market price as your break even point. With all due respect, I don't think you're going to be able to justify why Armstrong without a Q is the bargain of a lifetime at that level, even with 7 years to play with.