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Biotech / Medical : VD's Model Portfolio & Discussion Thread -- Ignore unavailable to you. Want to Upgrade?

To: Vector1 who wrote (4671)	4/20/1998 5:26:00 AM
From: Flagrante Delictu	Read Replies (2) \| Respond to of 9719

Vector 1, Good thing you have a kid to blame it on.(Smile). First, you switched the numbers. The stock is $15.25, not $15.00. Second, the warrant in my analysis was purchased for $6.125 less than the stock. In this case, that would mean $9.125 . The warrant, as I pointed out, has been easily available at that differential from the stock. In fact, as I also mentioned, it has occasionally been available at $6.375 less than the stock. Your analysis showed the warrant purchased at $5.75 less than the stock, namely $9.25 vs. $15.00. But worse, you bought more warrants than stock, and then proved your thesis by pointing out that one would have lost more in the warrants than the stock in a decline to $10.00 in the stock. Moreover, even under this wretched comparison, $10,000.00 in the warrants lost only $2890 more than in the stock, on a $5.25 decline in the stock. Had the stock gone as low as zero, you wouldn't have lost any more in them than you would have in the stock. And you admitted the desirability of the warrants over the stock, should a similar (or greater) upside move occur in the stock. But, had you evaluated the warrants as a one for one substitute for the stock, as illustrated in my thesis, you would have found, as illustrated in that thesis, that the purchase of the warrants vs. the stock was as much as $612.50 better than (a loss of $6.125 less than) the purchase of the stock per 100 shares purchased, and never more risky than the stock at any calculable price because the warrant purchased at $6.125 less than the stock can theoretically only go as much as $7.125 worse than the stock (because at expiration, the warrant & $7.125 is exchangable into the stock, and you wouldn't exercize the warrant if the stock were trading for less than$7.125, but would instead buy the stock at that lower price to regain the position in LGND that you had had before you switched out of the stock into the warrant). That $1.00 potential loss on the warrant is offset by the approximate $1.00 savings in interest in your margined account resulting from your having to borrow $6.125 less on the warrant than the stock from now until 6/3/2000. Check it out. It's not that complicated.