by Travis Johnson, Stock Gumshoe | May 15, 2013 11:40 am
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Source URL: https://www.stockgumshoe.com/2013/05/selling-a-banker-buying-a-warrant/
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Hi Travis, referencing your chart on the bank warrants, I am still confused on the Citigroup warrants. They had a 1 for 10 reverse split so wouldn’t the strike price on the series A be 106.10 and you would have to buy 10 warrants to purchase one share. The current stock price is 51.34 and the warrant is .63. The stock would have to go above 112.40 (106.10 + 6.30) before 1/4/2019 to be in the money (over a 119% gain). Am I correct?
Yes, I did not adjust for the consolidation — just pulled up all the existing warrant terms so i could scan them tkgether. The C warrants are very far out of the money and are o e of the least appealing ones to me, but I’ll double check the adjustments to the warrants.
Just double-checked and added a note to that article as well, thanks for reminding me.
Yes, the strike price is multiplied by ten, and you need ten warrants, so your calculations are on the right track. The stock and warrant price have moved slightly, but you do need the stock to more than double to be in the money. For the B warrants it’s even worse, you need the shares to get to $178.50, about a 250% gain … but ten of those warrants will set you back only 70 cents, so it looks like some folks are treating those as a lottery ticket and dreaming of another bank bubble.
The Bank of America B warrants and the Valley Financial warrants also require huge moves in the underlying stock to have any value, FYI, but most of the others are at or near the money (sometimes dramatically in the money, for those that recovered sharply), so the upside potential is more limited because you’re putting up a larger investment in the warrants, but there is some downside in the easily attainable performance you need to make a profit — if those stocks go up 5-7% a year, the warrants will be profitable. You might need them to go up more than that for the warrants to be substantially more profitable than the stocks, but there’s a pretty rational case to be made for most of them unless you think they’re at peak valuations again.