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To: koan who wrote (19028)8/24/2006 5:29:17 AM
From: tyc:>  Read Replies (2) | Respond to of 78415
 
>>Now, say K goes to $1,000 a share...

As a warrant progresses deeper in-the-money, or as expiry approaches, the delta approaches 100%. When the delta is 100%, your idea of leverage is valid. But at the strike, where it is now, the delta is only ~50%.



To: koan who wrote (19028)8/24/2006 6:00:19 AM
From: tyc:>  Read Replies (1) | Respond to of 78415
 
Postscript:

Take BWR warrants which are deeper in-the-money. You would say that the leverage is (1.36/.67) 2x. However, this far in-the-money, its delta is about 69%, so its leverage is actually 69% of 2x, or 1.4x. And 1.4x is poor leverage.... a dollar invested in BWR warrants will perform only 1.4x a dollar invested in the stock. One might as well hold the stock, IMHO.


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