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Should Warrants
– Warrant Investor Attention?
Many investors
are excited about the prospects of a rip-roaring bull market in
the precious metals sector and are presented with a variety of
investment vehicles with varying degrees of risk and leverage
and advice on how to invest accordingly.
Investors
frequently read about buying gold bullion, natural resource
mutual funds, ETF’s, and mining shares. But another often
overlooked investment vehicle that investors may wish to
consider would be warrants, particularly long-term warrants on
the mining shares.
Let’s briefly
delve into warrants and also distinguish them from call options
and Leaps. Calls and Leaps are created/written by other
investors giving you the right, but not the obligation, to
purchase the underlying security at a specific price and
expiring on a specific date in the future. Call options usually
have a life of 30 days, up to 1 year while Leaps may go out 2
years. Investors will find that there are not many calls or
Leaps on mining shares and if so, the life of the call or leap
is too short to play this bull market.
Warrants, on
the other hand, are actually issued by the company, frequently
in connection with an IPO or private placement. Some of the
warrants issued will trade but most will remain privately held
and never trade in the markets. Warrants also give the investor
the right, but not the obligation, to purchase the underlying
security at a specific price and expiring on a specific date in
the future, sounding very much like call options and Leaps.
However, warrants will trade much like a common stock and are
purchased through your broker and may have a life of up to 5
years. Why do most investors lose with call options and Leaps?
It is all about ‘time’. When the time runs out, i.e. the
warrants expire before the price of the security has moved up,
you lose your investment dollars. With warrants and
specifically long-term warrants, which we would define as having
a remaining life in excess of 2 years, time is now on your side.
Many new
warrants have come to market in the last 6 months with a life of
5 years. If investors can find a 5 year warrant on their
favorite mining companies, they can now relax and enjoy the ride
of this bull market while also gaining the additional benefits
of the leverage associated with the warrants.
Why should
investors consider warrants? This can be summed up briefly as
increased leverage and decreased risk. Investors should
normally be looking for warrants which have the potential to
generate a 2 to 1 leverage, meaning if the underlying common
stock goes up 100% then the warrants will increase 200%. Also,
by purchasing the warrants, you may control the same number of
shares of the company (at a fraction of the price of the common
shares) thus limiting your capital exposure and decreasing your
risk.
For more
information on warrants you may wish to visit
www.PreciousMetalsWarrants.com where you will find much more
information and education on warrants.
For
subscribers, we furnish a complete listing of all natural
resource shares having call options, Leaps and warrants in a
simple to read table format.
May 2007
Dudley Pierce Baker
Guadalajara/Ajijic, Mexico
Email:
info@preciousmetalswarrants.com
Website:
PreciousMetalsWarrants
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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