Goombarh Flash 18, Feb 25th, 2011
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Good Morning,
Though I have been a critic of Goldcorp, I am not against making money on this glamor stock. They released terrific results yesterday, and as I have said previously, they are doing the right things with divesting low grade Osisko and buy high grade Andean.
Note the chart above, their soon expiring warrants are seriously lagging the stock, probably funds divesting after year end with close expiry in June 9th, 2011. There are 8 million of these critters and they have become seriously leveraged to the stock price ~ 16. Goldcorp warrants (GG.WS, TSX: G.wt.G) should move with the stock price upwards and with the Gold price upwards and maybe peak in May before expiry in June. Pricing is sub $3 presently and strike price is $45.75 Cdn which is the price right now. Therefore, no value in warrant except as an option should the price move upwards beyond $49 Cdn, then these warrants become breakeven. Beyond $49, each $1 stock moves, the warrant should move $1 also giving a 16 to 1 leverage.
This is definitely risky as if GG doesn't move up, then you lose your whole investment. However if GG moves to $62, $52, then you have a double. I have bought and am holding.
Until next time,
Marco G.
http://goombarhsedge.blogspot.com/
Posts
Hello,
ReplyDeleteIs this how all warrants work, after the strike price has been met because you say that beyond $49 it should move on a 1-1 basis with the stock? When won't it move on a 1-1 basis? Also, lets say the stock is at $59 and the warrant added $9 as well, will the price of the warrant go down as it nears the expiry date? When should you exit the warrant, even if Goldcorp keeps increasing in value?
Hi G-money.
ReplyDeleteFirst Good warrant info is here:
http://canadianwarrants.com/
Basically warrants gives you the right to buy at the strike price, which is $45.75 CDN for these G.wt.g warrants until Jun 9, 2011. After that date, the warrants are worthless.
Therefore, if Goldcorp shares are $50Cdn, then the warrants intrinsic value is $50 - $45.75 or $4.25.
If Goldcorp shares are $51Cdn then the warrants are worth $5.25; that is why I say $1 for $1. That is the leverage, for $1 gain in Goldcorp shares it is 2% of Goldcorp value whereas for the warrants it is 20% of the warrant value.
Presently the warrant as of now Mar 21 closed at $3.20, while shares are at $47.20. So the warrants are worth $47.20 - $45.75 = $1.45 intrinsically and the rest of $3.20 ($1.75) is the so-called time value one is paying in buying.
As the time for expiry rolls close, the time value moves to zero, because at expiry, the warrant is worthless.
Do not hold the warrant too close to expiry, as nobody will buy them, there is a time lag to get the warrant and to pay up to buy the shares prior to expiry.
Marco G.
Marco,
ReplyDeleteThanks for your feedback!! With regards to expiration, when would you personally sell your warrants in Goldcorp, at the latest?
Thanks in advance,
G-money
Hi Gmoney,
ReplyDeleteI have held G.wt.g since prior to posting.
I have sold some and kept a core, while the correction happened.
I have since bought back some.
I will sell, if I detect a reversal, but irregardless, I need to be out 2 weeks prior to Jun 6, which would be end of May.
Marco G.
Marco,
ReplyDeleteThanks a lot for your response..again :)
The reason I am curious about Goldcorp's warrants is because I believe that we will have another serious leg-up in gold but only for a few more weeks. I would love to purchase some of Goldcorp's warrants but don't want them to go down simply because of the expiration date.
So by your experience and knowledge, if I sell them end of April/beginning of May the warrants would not at that time be effected by the expiration date being so close?
I have never bought warrants before but I think Goldcorp's stock will increase handsomely over the next few weeks and want to ride the warrants while that happens.
Marco,
ReplyDeleteWould you personally buy warrants of Franco-Nevada(FNV.WT)? They have traded in almost perfect unison with gold and there warrants are In the Money. They leveraged to the stock price at about x6. The good thing is that their expiration is in 2012. What are your thoughts?
Any thoughts on my questions about warrants from FNV.to, Marco?
ReplyDeleteHi G, I think you have found my secret. I was waiting for time to write an in depth article about Franco Nevada, but you've found it first.
ReplyDeleteGood for you!
Marco G.
Marco,
ReplyDeleteLOL...funny. I hope that you are still going to write an article about them - I will be waiting with great anticipation for it.
To be perfectly honest, I did buy some FNV.WT and of course they immediately dropped in value - I bought at the top...LOL. I will hang on to them and when precious metals rise, they will rise, hopefully, at a very fast pace.
Keep on blogging!
Marco,
ReplyDeleteAny idea why Franco-Nevada didn't participate in the huge price run in most precious metal stocks? It was basically flat. I am so disappointed.
Hi G,
ReplyDeleteDunno 'bout Franco, but did you see the move of Goldcorp warrants yesterday? Holy smoking stock --- up 50%.
Hope ya gots sum,
Marco G.
May 4th, got some Goldcorp warrants from previous and today.
ReplyDeleteEarnings release:
http://finance.yahoo.com/news/Goldcorp-Earnings-More-Than-prnews-2099462307.html?x=0&.v=18
Looking for a pop tomorrow.
Marco G.