If you’re an investor who can consistently identify stocks trading at a discount and hold them till they reach value, is it wise to accentuate your gains by buying warrants instead?

http://ift.tt/eA8V8J

This is something that has bugged me. Assume you find a bargain stock at $3. You are certain that within 3 years it appreciates by 50% minimum. You have a long and successful track record of finding such bargains, and you only invest with cash upfront so you have a lot of holding power.

Now this $3 stock has a $1 warrant selling at $2 expiring in 2021. If you are certain that the stock can reach $4.50 by 2020, that would mean the underlying warrant should hit $3.50 by then. The stock gains 50% but the warrant gains 75%.

I understand that in isolation, you could be wrong. But if you’re right every 4 in 5 times, won’t this be an essentially “easy” way to accentuate your gains in the long run?

Or am I missing something here?

PS: I’m talking about company-issued warrants (not call/option warrants) with long exercise deadlines.

submitted by /u/learner1314
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May 13, 2017 at 04:20PM

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from /u/learner1314

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