Jeff Baker 9/5/2020
**the examples and commentary given are for informational purposes only and as with any investment decisions you are encouraged to do your own due diligence and consult your licensed investment advisor**
Most of the examples you will find online seek to offer a panacea for investments, the next big thing, the one you missed. Few offer the caveat that you would have had to have perfect timing to ever be in the trade. Was a private placement that you could never have gotten an invitation to? Maybe a parabolic swing on a stock that if you bought too late would have put you on the downside and given you trading whiplash that kept you from re-entering the markets until you physically recovered. This article series will cover an investment of 3000.00 USD in a basket of 10 warrants during a 7-day cycle but could be scaled with our warrant calculator at the end of this series.
As a Senior Analyst at Common Stock Warrants (CSW) and the primary data analyst, programmer, economic geologist, I have had the opportunity to run many Python simulations and placed our databases within the machine learning environment to find statistical abnormalities and patterns in warrants. This series of posts will focus on how the results of those investigations have led me to find a path to creating a rolling basket of securities that require far less capital to start trading with warrants. All of this is prefaced with an in-depth exposure to the trading methodology of Dudley Baker and CSW which seeks to secure thousands of percent in gains in longer term scenarios with warrants.
Before we start down this road, let us first get some of the details out of the way so BOOKMARK this post as it might be relevant to revisit if any of the terminology or discussion in subsequent parts of this series needs clarification.
What is a warrant?
A warrant is a security (like an option) giving the holder the right, but not the obligation, to purchase the underlying stock at a specific price, within a specified time period. In essence, a warrant is very similar to a long-term call option.
Is this different than buying a stock?
Obviously, some differences exist, or it would be a stock, however, the way in which most of the warrants are traded is similar, if not identical. Examples of executing the trades will be included throughout the series of articles. The items that are different and should be considered are listed and detailed next.
Exercise price
This is the price at which the common share must achieve to exercise the warrant. For our purposes, the exercise price has no implication in our entry or exit points as the trades are not long term and suspect conditions are removed from potential participants of the basket. The exercise price is directly related to intrinsic value which is relevant but in a different capacity to exercising the warrants which is contrary to the objective.
Things to be aware of?
Acceleration Clauses, Extensions and potential dissolutions. Again, these are items that flag companies by weight to include or exclude from the basket.
Terms?
The terms are relevant in most cases as they relate to underlying intrinsic value, however as a component of the shorter-term trade, these are not relevant as the prices for entry and exit are independent of the terms for trading purposes. They are relevant as they relate to the warrant and its exercise price if one were to choose to convert the warrants to shares but that is outside the scope of this series of articles.
Liquidity
One of the most important topics and a large component of creating a warrant-based index that focuses specifically on warrants with subclassifications of industry related dynamics, exchange related dynamics, and a volumetric indicator for warrant liquidity. “Can I sell it?” should always be a question that is asked when looking at warrants.
News
Market driven events have massive implications for a warrant when the underlying company has big news. This is the leverage opportunity you are trying to precede, and timing is essential.
Length of trade
This particular series covers a 7-day period from entry to exit. Future articles and Series will cover different approaches both shorter and longer term.
Now that we have covered the underlying information, we can begin to discuss the concept of how we develop a basket of warrants. Why I have taken this approach and the potential upside and downside to the trades from the perspective of the retail investor that might not have considered a warrant as part of their portfolio prior to this, or the experienced investor that misses some events by lacking diversification in their warrant holdings.
Again, this series will cover an investment of 3000.00 USD over the course of 7 days with various entry exit points based on a python filtered grouping that was manually analyzed and turned into a basket of 10 warrants out of several hundred.
What’s the catch Jeff?
It would be pretty great if you decided to SUBSCRIBE to our database so that you can begin finding warrants that fit your investment needs. More hours have been spent curating and updating the data than any other service available and we seek to give the largest collection of these securities for helping you make sound decisions based on leveraging your cash into bigger returns. That is, after all, the beauty of the warrant as an investment vehicle… Leverage. One of the companies in this basket was up 700 percent and all the details will be covered in the subsequent articles.