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Mining Stocks – Options, Leaps, & Warrants
Dudley Baker
PreciousMetalsWarrants
June 6, 2005
Seems precious
metals investors are searching for the mining stocks which will
bring them the best possible returns in this bull market. We
would not dare disagree with any of the recommendations given by
any of our favorite analysts, including Adam Hamilton, Doug
Casey, Jim Dines and J. Taylor.
We only ask the
question, “is it possible to generate even more leverage by
purchasing options, leaps, or warrants on these
recommendations?”
Let me define
and explain each of the above terms.
Call Options:
A call option
is a contract that gives its owner the right, but not the
obligation, to buy a specified number of shares at a
predetermined price within a set period of time. Most options
have a life of 90 days or less. Unless, you are an
accomplished trader or just incredibly lucky, I would personally
not recommend call options as a means of playing the mining
stocks. You have to be right on the direction of the market as
well as the timing. Not so easy to do. Also, there are very
few call options on stocks of mining companies with the
exception of Newmont Mining and a few more of the big companies.
LEAPS:
A LEAP which
stands for Long Term Equity Anticipation Securities is also an
option as defined above but these have a longer life of perhaps
up to 2 ½ years. Yes, this gives you much more time but there
are virtually no LEAPS on the mining stocks. Again, Newmont
Mining and Placer Dome and a few others but all currently go out
no further than January 2007.
Options and
LEAPS are actually created or written by investors or companies
who write an option and keep the premium (the amount you paid)
as income. The underlying company receives nothing.
In the very
popular and highly recommended book, “The Coming Collapse Of
The Dollar And How To Profit From It” by James Turk and John
Rubino, they discuss options and LEAPS as a possible avenue for
investing in the mining stocks. They did not discuss our third
possibility, warrants, which we feel is more “investor
friendly”.
WARRANTS:
A warrant is a
long-term call option giving the holder the right, but not the
obligation to acquire the underlying security at a predetermined
price and for a specified time. Warrants are actually issued
by the underlying company, normally in connection with a
financing arrangement and are sometimes called a “kicker” or
equity kicker”. Most warrants never trade but are held by
Mutual Funds or other large investors whom have provided the
financing.
However, there
are many warrants that do trade freely on either the U.S.
Exchanges or the Canadian Exchanges. These warrants trade
similar to their underlying stocks and will fluctuate up and
down with the price of the stocks.
Warrants
actually have a longer life than options and most LEAPS which is
why we are partial to them. Warrants are usually issued for at
least 2 years and sometimes up to 5 years. Timing seems to
always be the issue doesn’t it? So we prefer the warrants on
the mining stocks which have a remaining life of at least 2
years. There are many warrants which do not expire until 2008
thru 2010 giving investors more time for this bull market to
develop. Also, there are warrants trading on companies mining
gold, silver, copper, zinc, cobalt, platinum, nickel and yes,
even uranium.
Options, LEAPS
and Warrants are all very risky but provide investors incredible
leverage. If the underlying security does not exceed the
exercise price by the expiration date, all of the above become
worthless.
June 6, 2005
Dudley Baker
email:
info@preciousmetalswarrants.com
website:
PreciousMetalsWarrants
Interested
in learning more about Warrants?
“If you like
the Precious Metals Stocks, you’ll love the Warrants.”
Dudley
Baker is the owner/editor of Precious Metals Warrants, a market
data service which provides you with the details on all mining
& energy companies with warrants trading on the U. S. and
Canadian Exchanges. As new warrants are listed for trading we
alert you via an e-mail blast. You are provided with links to
the companies’ websites, links to quotes and charts, tips
for placing orders and much, much more. We do not make any specific
recommendations in our service. We do the work for you and provide
you with the knowledge, trading tips and the confidence in placing
your orders.
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Disclosure/Disclaimer Statement
PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.
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