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Gold/Mining/Energy : Precious metal company Warrants -- Ignore unavailable to you. Want to Upgrade?

To: tyc:> who wrote (308)	1/7/2006 1:52:40 PM
From: LLCF	Read Replies (2) \| Respond to of 681

Oh, I agree... it's just been an observation of mine that often you start buying a warrant on a 55V and it trades @ a 45V over time as the stock moves up, ie. they don't move as much as the model predicted. That's OK as you're still making money as long as they move. Typically I like to buy warrants only on stocks that I really like long term because of this... why? Because if I think a stock should go from $2 to 6$ over the life of the option as the story unfolds, there is often tremendous opportunity due to sell orders in the option over time. Example: 1.) I buy a .25 option (IV=55) with the stock @ $2 (say strike is 3.5 or something and delta is .20). 2.) The stock moves up to $3 but the option only moves to .30 instead of .35 due to large sell orders... volume is picking up. 3.) IV on the option has now moved down to 42 due to the lag in warrants. I thought they were cheap on a 55V due to the story of the stock and economic situation for gold, and now they're REALLY cheap. 4.) Because I still like the long term story (hopefully it's gotten even better) I want to REALLY pile in now on this high volume (ie. seller). Why? I made money on my warrants and got them cheaper earlier, why buy on the way up?? 5.) You buy more because: a) they are actually a BETTER investment now than they were! They have a higher expected return. b.) when the selling dries up they may actually return to the higher vol state... ie. outperform the models (new 42Vol) perdiction. For this reason: 1.) I often buy the stock in a case where the warrants are way out of the money... then as the stock moves up, I take profits and buy the warrants when I see volume. 2.) I try and buy warrants when I see big volume (or course at a reasonable price)... with a seller sitting on them. Therefore: 1.) Warrant buying is an art, and can be frustrating if you "want to buy NOW". IT's best to have a list and monitor them. Strangely, you can often get great deals during rallies in the underlying as the warrant simply runs into sell orders that are sitting around. 2.)Due to 1.) above, some of the 'cheapest' warrants and biggest volume are on days when maybe you don't really want to buy!! (Too frothy) Yet you wait, and sure enought the stock comes back in... but the warrants don't!! Therefore it's nice to own some stock (which you unload or trade on days like this) or I often simply sell some of my other gold stocks that day while I buy these warrants... maybe something larger or a Gold equivelent... your ETF, large cap gold stock, stock involved in the same area mining wise or other relation... etc. 3.) IF I was doing this RIGHT, I'd have all the warrants I want to monitor on a spread sheet linked into a data source with columns for IV and volume so as not to miss the large sellers. DAK