Post by oldman on Oct 19, 2013 8:03:55 GMT 7
As this may be the last leg of the bull run, one strategy is to ride company issued warrants. These warrants are all call warants and are basically issued by the companies themselves, usually to repay some debt obligations at the expiry date of the warrants.
Some of these warrants are deeply out of the money.... meaning that their exercise price is far lower than the current market price for the mother shares. Yes, I have bought some of these during the market downturn last year.
The concept is that if I were to have bought the mother shares in a downturn, I would not have known how far down the shares can spiral. By buying the company issued warrants instead, especially those that are way out of the money, I am basically taking a bet that when the market recovers, the mother share price will also recover and the warrant may get back into the money and I can then take some profits. Of course, the first criteria before buying any company issued warrants is that I must firstly like the prospects of the mother shares over the period of the warrant lifespan.
By buying these warrants, I have contained my potential loss to just the price of the warrants but my gain can be many times my cost. Yes, when I buy these warrants, I am prepared to totally write off the cost of these warrants.
Sure, this is a risky investment but the risk reward ratio can be tempting... if one buys these warrants at a low price. Please note that these company issued warrants are different from the warrants issued by third parties. I do not put money in warrants issued by third parties as these are usually short term warrants of only a few months till a year plus at the maximum. Usually when I buy company issued warrants, I like a longer term horizon of a few years as I really do not know when the bear market will turn bullish.
For those who are unsure what company issued warrants are, just do a google search as there are lots of information available online. Also, please do not ask me which warrants I have bought or what I intend to do with these. Instead, do refer to this article that I have written recently on selective sharing.
Some of these warrants are deeply out of the money.... meaning that their exercise price is far lower than the current market price for the mother shares. Yes, I have bought some of these during the market downturn last year.
The concept is that if I were to have bought the mother shares in a downturn, I would not have known how far down the shares can spiral. By buying the company issued warrants instead, especially those that are way out of the money, I am basically taking a bet that when the market recovers, the mother share price will also recover and the warrant may get back into the money and I can then take some profits. Of course, the first criteria before buying any company issued warrants is that I must firstly like the prospects of the mother shares over the period of the warrant lifespan.
By buying these warrants, I have contained my potential loss to just the price of the warrants but my gain can be many times my cost. Yes, when I buy these warrants, I am prepared to totally write off the cost of these warrants.
Sure, this is a risky investment but the risk reward ratio can be tempting... if one buys these warrants at a low price. Please note that these company issued warrants are different from the warrants issued by third parties. I do not put money in warrants issued by third parties as these are usually short term warrants of only a few months till a year plus at the maximum. Usually when I buy company issued warrants, I like a longer term horizon of a few years as I really do not know when the bear market will turn bullish.
For those who are unsure what company issued warrants are, just do a google search as there are lots of information available online. Also, please do not ask me which warrants I have bought or what I intend to do with these. Instead, do refer to this article that I have written recently on selective sharing.