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Dudley Baker

Dudley Baker

Dudley Pierce Baker is the founder and editor of Common Stock Warrants and its predecessor, Precious Metals Warrants and a 1967 graduate of St. Mary’s…

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Using Options and Warrants in Volatile Markets

Gold is roaring once again this morning and trading above $1800 an ounce and silver back over $40 an oz. Financial markets are looking at another hard down day and resource shares; we will have to see what the day brings. Everyone knows the resource shares have greatly lagged the performance of gold but our days will come and the resource shares play catch up and this could begin at any time.

In these volatile markets, investors should be aware of some of the advantages of using options, but even more so, long-term warrants in their investment planning. With the markets up one day down the next and the future somewhat uncertain perhaps a slightly different approach might be necessary.

The use of options, warrants and even LEAPS would greatly limit your initial cash outlay of your investment dollars.

Thus, you can control a share position in a company with much less money but still process the potential for great gains.

This is what we would call a "win-win situation".


Basic Definitions:

A call option gives the holder the right but not the obligation to buy the underlying common shares at a specific price and expiring on a specific date. Options will have a predetermined life of no more than 12 months and would normally be traded on the Chicago Board Option Exchange (CBOE).

A LEAP has the same definition but could start out with a predetermined life of up to 2 years and again would trade on the CBOE.

Warrants, while somewhat similar, have some different features. Warrants are issued by the company (not written by an investor) in connection with a stock offering or financial arrangement and can have a life of even 5 years or more.

The basic definition is the same, being, a warrant gives the holder the right, but not the obligation, to acquire the underlying security at a specific price and expiring on a specific date in the future. The length of the warrant, whether 2 years, 3 years, 5 years, etc. is determined by the company and is part of the negotiating process in the issuance of the common shares along with the predetermined exercise price.

Investors should be especially intrigued with those companies that have long-term warrants trading with a remaining life of over 2 years. The more time the better to give the company time to execute on their business plan and time for the markets to move up.

Think about it. A warrant, a long term call if you will, on a company that you like that greatly limits your cash outlay while offering you the potential for great gains. The leverage is the key to warrants, a greater gain on your investment dollars.

If you need more information you can visit our Learning Center.

We saw this interesting quote recently:

...."if we are all in the parade who is going to watch us walk by"

Think about this the next time you try and convince a friend or family member to invest in resource shares or warrants. Most just don't get it, at least, not yet.

...."Get yourself positioned to take advantage of this once in a lifetime ride."

 


For those readers unfamiliar with our services:

PreciousMetalsWarrants.com provides:

  1. An online database for all warrants trading on the natural resource companies in the United States and Canada. Our database is the most comprehensive database that you will find.
  2. "A Look Over My Shoulder" - This is my entire personal portfolio and I provide an audio update each Thursday evening and emails as I buy or sell securities or warrants. Each subscriber can decide whether to follow me but this is your decision and we suggest that subscribers do their own due diligence before buying any securities.
  3. Insiders Trading Data: We track the insider trading on the Canadian Securities and issue BUY and SELL Alerts as we deem necessary. We have a great track record of approximately 108% gains on all closed trades.

We encourage all readers to sign up for our freeweekly email.

 

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