The strike price will not change. When the pps
Post# of 32970
(Total Views: 629)
Posted On: 04/10/2019 1:43:00 PM
The strike price will not change.
When the pps of the stock reaches the strike price of the warrants, they will still be traded (but some will likely be exercised then). Warrants will be traded until they are exercised or reach their time limit (5 years), no matter the value of the stock itself.
Imagine that in 3 or 4 years, the pps reaches 100$ then if you own a warrant, it means you have the right (not the obligation) to exercise it. You pay 3.44 to the company and receives a brand new share you can keep or sell for a hefty profit. If the warrant allows it (it depends on the warrant type) it can even be a cashless exercise, meaning that the new share is immediately sold and you pocket the difference (100 - 3.44 = 96 56, for the actual profit you must also deduce the fees and the price at which you bought the warrant) without having to pay the 3.44 yourself.
Now, at this moment, any warrant not yet exercised could still be traded of course (i.e sold and bought under VERBW by brokers that allow it). What would the value be then? Well, the base value of the warrant would be the expected profit (100 - 3.44 = 96.56). If it is less, there would be arbitration almost immediately, likely through high frequency trading the human mind cannot even follow. But it can also be more if the market expects the price of the stock to go even higher.
So yes, if you buy warrants now, and the pps increases significantly in the coming years, you can make an absolute killing... This is leverage.
When the pps of the stock reaches the strike price of the warrants, they will still be traded (but some will likely be exercised then). Warrants will be traded until they are exercised or reach their time limit (5 years), no matter the value of the stock itself.
Imagine that in 3 or 4 years, the pps reaches 100$ then if you own a warrant, it means you have the right (not the obligation) to exercise it. You pay 3.44 to the company and receives a brand new share you can keep or sell for a hefty profit. If the warrant allows it (it depends on the warrant type) it can even be a cashless exercise, meaning that the new share is immediately sold and you pocket the difference (100 - 3.44 = 96 56, for the actual profit you must also deduce the fees and the price at which you bought the warrant) without having to pay the 3.44 yourself.
Now, at this moment, any warrant not yet exercised could still be traded of course (i.e sold and bought under VERBW by brokers that allow it). What would the value be then? Well, the base value of the warrant would be the expected profit (100 - 3.44 = 96.56). If it is less, there would be arbitration almost immediately, likely through high frequency trading the human mind cannot even follow. But it can also be more if the market expects the price of the stock to go even higher.
So yes, if you buy warrants now, and the pps increases significantly in the coming years, you can make an absolute killing... This is leverage.
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