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Biotech / Medical : Ligand (LGND) Breakout! -- Ignore unavailable to you. Want to Upgrade?

To: Flagrante Delictu who wrote (19564)	4/24/1998 5:17:00 PM
From: bluejeans	Respond to of 32384

So exceedingly off topic that it may be on topic zenpop.home.mindspring.com

To: Flagrante Delictu who wrote (19564)	4/24/1998 8:32:00 PM
From: bob zagorin	Read Replies (2) \| Respond to of 32384

off-topic. "I had sex with Clinton too!", I know you will click on this link! zdnet.com

To: Flagrante Delictu who wrote (19564)	4/24/1998 9:32:00 PM
From: Russian Bear	Read Replies (2) \| Respond to of 32384

Semi-on topic Bernie, Let me state right away, for the record, that I do not disagree with your contention that LGNDW can be substituted for LGND in a favorable manner. Our only divergence is in our respective preferences of the nature of that "favorableness." You suggest that the warrants can be used so as to limit the downside risk, while retaining the upside potential. Fair enough. My point is that the warrants can also be used so as to increase the upside potential, without increasing capital outlay. Our difference, as I pointed out before, is not a substantive one. It is, rather, one of perspective. Our respective contentions are _not_ mutually inconsistent. Not in the least, as I am sure you well understand. "Greater leverage means greater risk, by definition," one of the statements to which you object, is a small excerpt from one of my posts on this topic, #4667 on the VD thread. In all fairness, I believe that you cannot reasonably object to it when it is read in context. Following is the entire relevant excerpt: <<Greater leverage means greater risk, by definition. Using current levels as a baseline, any given percentage move by LGND (in either direction) will result in a greater percentage move in LGNDW. That is because the ratio of the prices of LGNDW to LGND is approximately 0.6, whereas the "delta" of LGNDW is substantially higher.>> (Approximately 0.9.) The statement above is true, and it is true precisely for the reason that I indicate. I know that you fully understand that, in the above excerpt, I am comparing equivalent dollar amount investments in LGND and LGNDW. Likewise, I understood from moment one that you were comparing investments of unequal dollar amounts, but equal numbers of shares and warrants. Because I understood what you meant, I never challenged your conclusion. However, it is obvious that the only reason you can (quite accurately) make the case that your scenario is less risky is that your method leads to a lower initial cash outlay, by design. The upshot of all this is that we are both right. If it sounds as though we are comparing apples to oranges, as the saying goes, ...it is because we are doing just that. You know as well as I do that warrants, being derivative instruments, are merely tools, nothing more. They can be used for a variety of purposes. You can use them to limit your risk, by leveraging a smaller-than-otherwise dollar investment, while I use them to increase my variance, by placing an unreduced sum into a higher "beta" vehicle. As result of our respective preferences, we generate two utterly and completely different risk profiles. (In my estimation, neither of the above alternatives is unreasonable, by the way.) As I indicated before, your twist on the Black-Scholes model -- namely the substitution of margin interest rates for the risk-free rate -- is intriguing. The effect of your correction ("The McDermott Substitution"?) would be, at any given price, slightly to increase the attractiveness of buying calls and warrants, while slightly decreasing the attractiveness of being long puts. I thank you for that insight, sincerely. I must say, incidentally, that I have never before used quite so many words in voicing agreement with anyone. In the future, I propose that we save our debating stamina for an occasion when we genuinely disagree... ;-) May all your dealers deal deeply, and may all your pit bosses be vacuous, RB