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Hi all - I have a lot of questions regarding warrants - I posted these questions - link below:
If you can point me in the right direction either with answers or internet site links -
I would really appreciate it (I do not own either of the stocks I am using as my example in this message below):
http://boards.fool.com/Message.asp?id=1030050027911000&sort=id
Thanks - Michelle
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Hi all - I have a lot of questions regarding warrants
A warrant is the right to buy a stock at a specified price (up until the warrant expires).
Let's say Stock A was selling for $50, and you had a warrant that lets you buy the stock at $45/share... The warrant will perhaps sell for around $5.
You don't buy the warrant with the goal of trading it in for the "real" stock. What you are hoping is that the price of the common stock rises to $55 per share, and then the warrant is worth $10 per share. Had you purchased the stock, you return would have been 10% - with the warrant, your return is 100%.
Just remember that leverage works both ways - if the stock went down to $45, the warrant will lose most (but not all) of its value.
A warrant has some similarities to a "Call Option", except that it is issued by the company itself, and generally has a much longer life.
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Thanks.
But - Do you know what happens to the warrant version of the stock when and after it comes due? Does it still trade? Does it's trading value go to zero?
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To anyone who is interested - I did find some info on stocks vs. warrants. This is the best explanation I have found so far. This is the link to the message I posted on the results.http://boards.fool.com/Message.asp?id=1030050028368000&sort=id
