How to Evaluate Warrants

By Dudley Baker

Let’s get back to warrants, which ones, why, etc.

The first issue or question is, a warrant on what?

You must like the specific company, its management, its properties, geographical locations and its prospects for a rising share price.

Only then should investors ask the next question, ‘does this company have any long-term warrants?’

If the answer is yes, the company does have a long-term warrant trading, great, now you can get down to analyzing the warrant.

  • What is the remaining life until expiration?
  • What is the exercise price?
  • What does the leverage look like?

Of course, for our subscribers, all of this information is right at your finger tips and included in our detailed Warrant Database.

Timing and Leverage:

Our preference is that a warrant should have approximately two years or more of remaining life before we would consider it for investment. Remember we need time for the markets to turn upwards and time for the company to execute on its business plans, so a minimum of two years is a good idea, the more time the better.

Secondly, we look at the potential leverage which the warrant will command as the share price increases. On the leverage, we follow the views and teachings of Sidney Fried (see our Learning Center for more details).

The issue of leverage is merely to ask the question, if the share price goes up to x, xx, xxx, or xxxx, how will the warrant perform?

Don’t worry, we have done these calculations for subscribers in our Leverage Calculations in the Warrant Database.

We are looking for the warrant to have the potential leverage of 2 to 1, meaning the warrants will increase 200% on an increase of 100% in the common shares. We want to be rewarded for taking more risk by purchasing the warrants as opposed to buying the common shares.

To Recap:

If you like a resource company and they have long-term warrants trading you owe it to yourself to explore this potential opportunity. Not all warrants will meet your test of length of time until expiry or the potential leverage thereon, but this is where we have done the work for you in our comprehensive warrant database. Not familiar with warrants, visit our Learning Center.

Is This A Good Time To Buy Long-Term Warrants?

Frequently we are asked by our subscribers, “is this a good time to buy long-term warrants?”

We are of the opinion this is a great time for those with cash to be buying both resource shares as well as those resource shares which may have long-term warrants trading.

Based on our viewing of many charts and the consensus of many analysts we follow we must conclude that if we have not bottomed in the resource shares, that we are indeed very close.

The investment sentiment for resource shares is virtually at the lowest point since the beginning of the bull market in 2001.

Bob Moriarty at has an insightful article titled, Extremes of Emotion. For those investors new to the resource sector or anyone who is getting ‘weak knees’ in this current environment, we would suggest you give it a read.

You no doubt have heard the term, ‘to make money you must buy low and sell high’. Well readers it does not get much better than where we stand today. The entire sector is deeply depressed and as Bob agrees in his article above, this is THE TIME to step up to the plate. If not now, when? What will it take for you to step up? No one will ring the bell just for you, you must make that decision yourself.

It is your money and your decision what to do.

If you are already fully invested or substantially so, don’t be depressed. We are near the end and should be seeing higher prices soon. Hang in there — you will be rewarded.

If you are not a current subscriber SIGN UP NOW!

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