Originally posted by manishdaveIsn't warrent like call option but for longer term?
Other advantage of having option is if for some reason stock price goes down(not that it will) your downside is capped.
Kulman is Warren Fan.
Basant is Warrant Fan.
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Jim Rogers says that 90% of all call options expire worthless and they do because the probability of making money is dependent upon
a) the price of the option (that is decided by the writer)
b) There is very little time for any fundamental news to change the price of the stock.
In the case of warrants as I have discussed above
a) the warrant price is determined by the company so the company need not set the price too high (they would not squeeze shareholders)also it is not a zero sum game (our gains are not company losses). In the market most of the institutions do not spend time on warrants since it is highly illiquid leading to price anamolies.
b) 3 years and more is enough time for a company to show its true worth.
I am not sure if someone has done a study but over a period of time 90% of warrants would be profitable otherwise the original shareholder does not lose (warrants are generally issued free with shares) and the company loses (when no one opts for conversion).
I made decent money buying TV 18 warrants a couple of years back. The warrants were free with the rights and I bought significant Rights form from the market and sold off the shares on listing SO the warrants were free. They were later converted last year at Rs 234 per share.
Edited by basant - 21/Oct/2006 at 9:18am
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