SPAC Warrant Thread:
Warrants are a higher risk, higher reward investment made available to retail traders through SPAC’s. They trade a lot like call options in the sense where if you buy a warrant, and the stock price never goes over the strike price, it will expire worthless.
Warrants are a higher risk, higher reward investment made available to retail traders through SPAC’s. They trade a lot like call options in the sense where if you buy a warrant, and the stock price never goes over the strike price, it will expire worthless.
However, MOST (not all) warrants on SPAC’s have a few things in common:
1.) $11.50 strike price, meaning if the stock price goes over $11.50 you can exercise the warrant at $11.50 + your purchase price.
2.) Expires in 5 years
1.) $11.50 strike price, meaning if the stock price goes over $11.50 you can exercise the warrant at $11.50 + your purchase price.
2.) Expires in 5 years
3.) Typically a 1:1 ratio where 1 warrant = 1 share price.
These commonalities should always be checked prior to investing into warrants.
Basically how they work is a SPAC will issue a share + a warrant under a ticker, for example, $IPOBUN. Eventually, the SPAC splits the
These commonalities should always be checked prior to investing into warrants.
Basically how they work is a SPAC will issue a share + a warrant under a ticker, for example, $IPOBUN. Eventually, the SPAC splits the
Ticker of $IPOBUN to be $IPOB (the share) AND $IPOB-WT.
The reasons why a company does this is that it allows companies to give additional incentive to buy dilutive shares at a later date once executed. In this case, when $IPOB merges to $OPEN, all warrants exercised post
The reasons why a company does this is that it allows companies to give additional incentive to buy dilutive shares at a later date once executed. In this case, when $IPOB merges to $OPEN, all warrants exercised post
merger will provide a trickle or liquidity over time.
Investors like to trade warrants due to the exponential, penny stock like, movement when a share price goes up due to market recognition of the company. For example, I will use $LCA and $LCA-WT:
Investors like to trade warrants due to the exponential, penny stock like, movement when a share price goes up due to market recognition of the company. For example, I will use $LCA and $LCA-WT:
If the share price of $LCA is trading at $12, assuming a strike price of $11.50, then the intrinsic value of $LCA-WT is $.50 at that given moment (this is not usually the case, it’s usually more expensive).
If the share price of $LCA goes up to $20, now the warrant (assuming
If the share price of $LCA goes up to $20, now the warrant (assuming
an $11.50 strike price) has an intrinsic value of $8.50.
So let’s continue this likely scenario to understand how gains, and losses, work with warrants.
Let’s go back to $LCA trading at $12.00, and assume the warrants are at $2.00/warrant.
So let’s continue this likely scenario to understand how gains, and losses, work with warrants.
Let’s go back to $LCA trading at $12.00, and assume the warrants are at $2.00/warrant.
You buy 100 shares of $LCA at $12.00/share with an initial investment of $1,200.
Once the share price goes up to $20/share, you will make $800 or 60%.
However, if you buy 600 warrants of $LCA-WT at $2.00/warrant with an initial investment of $1,200 and it moves toward
Once the share price goes up to $20/share, you will make $800 or 60%.
However, if you buy 600 warrants of $LCA-WT at $2.00/warrant with an initial investment of $1,200 and it moves toward
It’s intrinsic value of $8.50 (because the share price is now $20) you will make $3,900 in profit or 450% gain.
The warrant is attached and fluctuates with the stock price.
Now, there is risk, because if you buy a SPAC warrant and it doesn’t go through, it will expire
The warrant is attached and fluctuates with the stock price.
Now, there is risk, because if you buy a SPAC warrant and it doesn’t go through, it will expire
worthless. The other risk is if the SPAC market collapses, which it has been known to do because CNBC decides to do negative coverage, then you exponentially lose your gains too as well.
Much higher risk, much higher reward. Tread carefully and BE SMART with your decisions.
Much higher risk, much higher reward. Tread carefully and BE SMART with your decisions.
I messed up my quick calculations:
Warrant gain is 425%
Share gain is 67%
Warrant gain is 425%
Share gain is 67%
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