Lots of chatter regarding rosy warrant scenarios.
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Posted On: 04/18/2019 3:05:20 PM
Lots of chatter regarding rosy warrant scenarios.
For simplicity let's imagine the strike price for conversion is $3. If the stock price 4 years 360 days (or two years and 10 days for that matter) from issuance is $20 the warrant will be worth i.e. trading at $17 plus or minus a few cents (more if the two year scenario...residual time value). It will be priced like a way in the money call option. Nice profit.
So if one wants stock sell the warrants and with the proceeds buy stock. In a taxable account one will have to pay tax on one's profit. The profit from selling the warrant is treated as ordinary income. Probably makes more sense in a Roth type account (like anything that goes up).
Perhaps everyone already knew this?
For simplicity let's imagine the strike price for conversion is $3. If the stock price 4 years 360 days (or two years and 10 days for that matter) from issuance is $20 the warrant will be worth i.e. trading at $17 plus or minus a few cents (more if the two year scenario...residual time value). It will be priced like a way in the money call option. Nice profit.
So if one wants stock sell the warrants and with the proceeds buy stock. In a taxable account one will have to pay tax on one's profit. The profit from selling the warrant is treated as ordinary income. Probably makes more sense in a Roth type account (like anything that goes up).
Perhaps everyone already knew this?
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