Why Stock Warrants – Why Now?
April 15, 2016
Dudley Pierce Baker
The Precious Metals sector (PM) has had a great move up since the beginning of 2016.
Is the move over?
IMO, hardly, we are just getting started.
As bad as it has been over the last several years we have maintained our view that the markets would come back and come back stronger than ever.
That is not to say we are just dreamers, but rather our belief in the view that gold is money and that others would return to this view as well.
My preferred methods of maximizing one’s exposure to the resource sector would be by purchasing common shares or stock warrants on selected precious metals companies.
So readers, what are stock warrants, why would you want to buy them and what is the best time to get started and how to purchase them?
What are stock warrants?
Stock warrants are a security issued by a company giving the investor the right, but not the obligation to buy the underlying common shares are a specific price and expiring on a specific date in the future. They are frequently referred to as an equity kicker or incentive to get an offering completed. Every stock warrant will have differing terms as some will expire in 24 months, 36 months or in some case 5 years.
Of course, the more time the better from my perspective and as a general rule, we would look for a minimum of 24 months of life remaining before purchasing any stock warrants.
Why would you want to buy stock warrants?
It is all about additional leverage. If you are looking to make 100% by purchasing the common shares of a company, we are looking for those stock warrants which will possibility generate gains of 200% or more, thus a leverage factor of 2:1 or greater.
What is the best time to get started?
Timing the markets is always difficult but by our take gold has put a bottom in place and is now consolidating above $1200 and preparing to head higher soon. Your timing could not be better to enter the PM sector ASAP and be positioned to capture gains in your common shares and/or selected stock warrants.
How to purchase stock warrants?
Stock warrants trade very similar to shares and will have a symbol assigned and trade on the NYSE, NASDAQ, TSX (Toronto Stock Exchange) or the TSXV (Toronto Stock Exchange Venture).
For our Canadian friends and investors, it is very easy for you to execute trades on the Canadian stock warrants.
For United States investors if maybe slightly more challenging depending on your personal brokerage firm. The facts are that many of the stock warrants trading in the PM sector are on Canadian companies. Those Canadian stock warrants have not and will not be registered in the United States, however, U.S. investors can buy and sell them but not actually exercise them (which we never recommend anyway).
In many cases, a U.S. market maker will establish a market for specific Canadian warrants and will assign a U.S. trading symbol (5 alpha characters ending in F) to facilitate trading in the U.S. We provide this symbol in our warrant databases, if available.
If your U.S. brokerage firm will allow you to place an order using the Canadian symbol for the stock warrants that is the preferred method. There are a few U.S. brokerage firms now furnishing this platform to investors and I suggest you review my write up in our Learning Center.
Currently, my personal broker, is Interactive Brokers, especially for U.S. investors looking to purchase the stock warrants trading on Canadian companies.
It is an easy signup process and if you are only going to trades, the Canadian stock warrants or Canadian securities, I would suggest setting your Currency to Canadian in the IB (Interactive Brokers) system.
You can easily download their Trader WorkStation platform at which time you will see your account and have access to all of the Canadian stock warrants which are trading.
I understand that Fidelity also executes the trades for the Canadian shares and stock warrants if you set up an International Account.
This is easy so don’t get frustrated.
I realize that most investors, including myself, hate to open new accounts and have more paperwork, but, the benefits to be gained by having a brokerage firm which will allow you to easily buy and sell the Canadian stock warrants will actually simplify your life.
I encourage you to visit our Learning Center for more information on stock warrants.