A question about your Sandstorm warrants
by flyfisher | December 11, 2011 5:20 pm
Travis, Do you live in the U.S. or Canada[1] (since U.S. citizens can’t trade the warrants[2] for stock)? Do you know if Sandstorm plans to register the warrants in the U.S.?
Endnotes:
- Canada: https://www.stockgumshoe.com/tag/canada/
- warrants: https://www.stockgumshoe.com/tag/warrants/
Source URL: https://www.stockgumshoe.com/2011/12/microblog-a-question-about-your-sandstorm-warrants/
I live in the US and have no need to exercise warrants (or options, for that matter). It’s almost always cheaper and easier to just sell the warrant/option back — then if you want to invest in the common stock with your proceeds, go right ahead.
I’ve been looking at the Sandstorm warrants for 2014, and I was wondering about liquidity risk. Perhaps I’m missing something, as I’m a bit of a newbie with regard to warrants, but what happens if you try to sell the warrant and no one wants to buy? I noticed that you said “sell the warrant/option back” – does that mean that the company will buy it back? I’m just imagining a scenario where you have wonderful paper profits but can’t sell the warrants due to a lack of liquidity. In a related question, why would someone does buy the warrants, say, a week or so before expiry? Are there any guarantees in such a thinly traded stock?
Any clarification would be much appreciated. Your blog is great!
No guarantees, and both the stock and the warrants are quite thinly traded — generally you’d expect an institutional trader would step in and buy the warrants if they slipped too far into the money, if only just to exercise them and pocket the discount for an easy trading profit. And no, I didn’t mean that the company would buy them back, I suppose it’s possible but it seems unlikely. You also have to be a Canadian investor to exercise the warrants, I believe, so if you’re not able to exercise them you are at least a little bit hostage to the market — if there’s a day when no one wants to buy the warrants for whatever reason, you’d probably have a hell of a time selling them. At least at a reasonable price. I’m not particularly worried about this, particularly given the 2+ years before expiry, but there’s certainly risk in both the shares and the warrants.
Thanks very much for your quick reply! I just wanted to run a scenario by you to see if I’m understanding you correctly… If I wanted to buy the 04/23/2014 warrants (with an exercise price of 60 cents) at their current price of .7136, the stock price would have to go higher than 1.31 (plus whatever spread might exist) for me to make any money. Currently Sandstorm stock stands at around 1.25.
I guess my questions would be the following: is there any historical data on the bid/ask spread for Sandstorm warrants? If so, what would it be? Does it vary as expiration nears? My next question concerns what you said about institutional traders stepping in to buy (in the money) warrants and exercise them. I assume that as the warrants near expiry the volume traded would increase significantly as these traders sought to get their risk free gains. Is that the case? Because right now the volume is extremely low. It seems like any selling would have to be very very spread out, which would entail a lot of brokerage fees, etc… Also, it seems like these institutional traders could end up having an inordinant amount of control over the bid/ask. Last question, what is the warrant leverage ratio for the 2014 Sandstorm Gold warrants? Many thanks for putting up with these questions, I hope they’re not too foolish!