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Thread: Warrants?

  1. #1
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    Default Warrants?

    Trying to get my head around warrants. If I'm understanding it correctly, a company issues free warrants to current shareholders - which they can then exercise at a set later date to purchase ordinary shares at a set (presumably) discounted price? But these warrants can be traded on the open market if the holder doesn't want to exercise them, so the buyer can then exercise them at exercise date?

    There are currently Kingfish warrants currently trading for $0.065.

    Found some info on them on the Kingfish site as below:

    Exercise Price will be $1.32


    Adjusted for dividends declared during the period up to the Exercise Date. The final
    Exercise Price will be calculated before the Exercise Date, and we will advise you at least 20 days before the Exercise Date.

    As an example, if the warrants are allotted on 10 May 2016 and the aggregate amount of the quarterly dividends declared by Kingfish between 10 May 2016 and 5 May 2017 is 10 cents, then the Exercise Price would be $1.22 (i.e. $1.32 less $0.10).


    I'm thinking it might not be such a bad idea to buy some. Depending on what the final exercise price is it could be good (and affordable) way to build my holding. Question would be - if I do decide to do this should I buy them now and take the risk they could drop in price between now and exercise date OR should I wait till closer to the time?

    Good idea or not?



    Last edited by justakiwi; 26-08-2016 at 09:10 AM.

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    Quote Originally Posted by justakiwi View Post
    Trying to get my head around warrants. If I'm understanding it correctly, a company issues free warrants to current shareholders - which they can then exercise at a set later date to purchase ordinary shares at a set (presumably) discounted price? But these warrants can be traded on the open market if the holder doesn't want to exercise them, so the buyer can then exercise them at exercise date?

    There are currently Kingfish warrants currently trading for $0.065.

    Found some info on them on the Kingfish site as below:

    Exercise Price will be $1.32


    Adjusted for dividends declared during the period up to the Exercise Date. The final
    Exercise Price will be calculated before the Exercise Date, and we will advise you at least 20 days before the Exercise Date.

    As an example, if the warrants are allotted on 10 May 2016 and the aggregate amount of the quarterly dividends declared by Kingfish between 10 May 2016 and 5 May 2017 is 10 cents, then the Exercise Price would be $1.22 (i.e. $1.32 less $0.10).


    I'm thinking it might not be such a bad idea to buy some. Depending on what the final exercise price is it could be good (and affordable) way to build my holding. Question would be - if I do decide to do this should I buy them now and take the risk they could drop in price between now and exercise date OR should I wait till closer to the time?

    Good idea or not?



    Theoretically looks OK but reality may be different.There may be an arbitrage for a reason.Look at previous warrants and how they performed as well.The Warrants may end up worth nothing and you will have blown your dosh

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    Quote Originally Posted by kiora View Post
    Look at previous warrants and how they performed as well.The Warrants may end up worth nothing and you will have blown your dosh
    Stupid question but how/where can I see the performance of previous warrants?

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    Quote Originally Posted by justakiwi View Post
    Stupid question but how/where can I see the performance of previous warrants?
    google.com
    kflwa

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    Quote Originally Posted by kiora View Post
    google.com
    kflwa
    OK, I shall rephrase that What am I looking for in terms of warrant performance? The final exercise price previous warrants went for or what?

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    Email Kingfish. Maybe they can help. I remember paying 90 something when the price was in the 80s but if you hang onto them you should reap Ok. Patience is a virtue...

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    I hesitate to join this discussion because the subject of warrants is so wide - but......

    - I wouldn't buy an option in a company that I would not select to buy shares in.

    - Past performance of warrants - in any company - is no guide as to how any other warrants might perform.

    - There is often a "time value" element in the value of the warrant, i.e. the longer until first option to exercise, the greater the "apparent" value in the warrant. Two elements at play here - the time value (DCF) of money and the uncertainty factor.

    - Is there an extended period to exercise or is it a limited, one-off date? i.e. does one have a choice in the matter of timing?

    - Is the market in the warrants sufficiently liquid to enable sale, if necessary?

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    Quote Originally Posted by macduffy View Post
    I hesitate to join this discussion because the subject of warrants is so wide - but......

    - I wouldn't buy an option in a company that I would not select to buy shares in.
    I recently purchased 1000 Kingfish shares which is why I am thinking the warrants could be a good way to increase my holding at a discounted price.

    - Past performance of warrants - in any company - is no guide as to how any other warrants might perform.
    Yep, I've pretty much got the "past performance is no indication of future performance" message drummed into my head already

    - There is often a "time value" element in the value of the warrant, i.e. the longer until first option to exercise, the greater the "apparent" value in the warrant. Two elements at play here - the time value (DCF) of money and the uncertainty factor.

    - Is there an extended period to exercise or is it a limited, one-off date? i.e. does one have a choice in the matter of timing?
    There is no specific date for when you can first exercise warrants but the website says "a form will be sent to you well before the Exercise Date" - whether that's a month or two months or whatever, I have no idea. Exercise date is 5th May 2017 and that's the cut-off date. If one hasn't exercised their warrants by 5pm that day the offer automatically lapses.

    - Is the market in the warrants sufficiently liquid to enable sale, if necessary?
    I don't know how one measures "sufficient liquidity" but we are only talking small amounts of money here. I have no idea if there is a minimum order for warrants but at the moment I'm thinking of around 500 warrants. They are trading today for $0.065 so if I bought them at that, and for some reason decided down the track not to exercise them but to sell them - we are not talking a lot of money. On the other hand, if I did buy them and exercised them at what ended up being a significantly discounted price (at exercise time) it would be a good way to increase my little holding at a lower cost than buying ordinary shares at the market price.

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    Options?! When you started your thread you were lamenting the "low" returns currently available from term deposits.. Looks like you've really turned the risk dial up to 9000 from that point!

    Good luck !

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    Quote Originally Posted by huxley View Post
    Options?! When you started your thread you were lamenting the "low" returns currently available from term deposits.. Looks like you've really turned the risk dial up to 9000 from that point!

    Good luck !
    I'm not sure if you're being sarcastic or not - don't know you well enough to judge that yet, but 500 warrants at $0.065 = $32.50 plus $30 brokerage = $62.50. If I decide not to exercise them down the track, that's what I've lost (wouldn't be worth selling them). If I do decide to exercise them at (who knows) say $1.22 and the share price is around what it is now, then I can add an extra 500 shares to my Kingfish holding, for around $600. Which means a few more "bonus" shares at dividend time.

    I'm a beginner. I am trying to get my head around my options and weigh up the pros and cons of any action (or inaction) I take. This just seemed like a way to add to my holding without paying market prices.

    Of course, I could be blonder than I thought and all of this could be a really bad idea.

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