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

To: TimbaBear who wrote (15968)	12/27/2002 3:21:09 PM
From: sjemmeri	Read Replies (1) \| Respond to of 78658

>Your point that the higher the value of the stock, the lower the value of the warrant doesn't necessarily follow in my mind. Because of the 125% of Fair Value fixed conversion rate, the value of the warrant should increase pretty much in lock step with the stock. The initial market value of the warrant certainly would increase with the initial market value of the stock (and thus indirectly with the strike price) but its not related to your value of the stock. So it might be a warrant to buy a stock that you value at $8 (perhaps growth in the 7 years might justify 12-15) for $30. Therefore, you aren't buying the warrant to buy the stock but to sell it back to the market. Which depends on a discount to the market value of the warrant once it trades. Which will depend on the B-S (or some other b.s.) model of the warrant value. Unless the stock once trading drops to close to your value estimate rather than the settlement estimate. In which case, you'll have a far out of the money option. At least, that's what I think.