The clock never stops

Feb 19th, 2010 – 3 Comments

One advantage of a warrant is that they offer investors leverage. You can own the right to purchase a share at a fraction of the cost of actually buying it.


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YAMANA

Hi,

Can you explain why YRI.WT.C-T is trading at 6.5 cents. The 52 week High/Low range is $2.18 /$0.04. As well, can you provide some insight as to how warrants work. What are the sources available to a retail investor to determine within what time frame the warrants have to be exercised. Can warrants become worthless?

Regards,

Ash

Hi Ash,

I covered Yamana Gold( YRI TSX) back on January 25, 2010. You can go back to the archives and look at the report on the stock itself . Your question on how warrants work is a good one and as I have learned in the classroom at Sheridan College if one person makes an inquiry there are many who want to know but don’t want to ask.

Warrants provide an investor with the option to buy a stock at a specific price over a defined period of time. In the case of the YRI warrants investors could purchase the right to buy .543 of a Yamana share for $6.00 until February 17, 2010.

YRIW

The chart for the warrants clearly illustrates the decline in the value of the option as the terminal date approached.

 

 

 

 

 

yri3

The six month chart for YRI tells the tale of the declining value of the warrants. As we came into 2010 the value of the shares of YRI fell below a level that crushed the economics of the option to buy .543 shares of YRI at $6.00. You could have bought the shares out of the market at a lower price than the costs associated with the exercise of the warrant.

One advantage of a warrant is that they offer investors leverage. You can own the right to purchase a share at a fraction of the cost of actually buying it. If the price of a stock moves higher the holders of warrants will enjoy a greater return on a percentage basis.

The disadvantage of a warrant is that it can expire with no value just like the YRI warrants.

 

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