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Gold is roaring once again this
morning and trading above $1800 an ounce and silver back over $40 an oz. Financial markets are looking at another hard down
day and resource shares; we will have to see what the day brings. Everyone
knows the resource shares have greatly lagged the performance of gold but our
days will come and the resource shares play catch up and this could begin at
any time.
In these volatile markets, investors
should be aware of some of the advantages of using options, but even more so,
long-term warrants in their investment planning. With the markets up one day
down the next and the future somewhat uncertain perhaps a slightly different
approach might be necessary.
The use of options, warrants and even
LEAPS would greatly limit your initial cash outlay of your investment
dollars.
Thus, you can control a share position
in a company with much less money but still process the potential for great
gains.
This is what we would call a
"win-win situation".
Basic Definitions:
A call option gives the holder
the right but not the obligation to buy the underlying common shares at a
specific price and expiring on a specific date. Options will have a
predetermined life of no more than 12 months and would normally be traded on
the Chicago Board Option Exchange (CBOE).
A LEAP has the same definition
but could start out with a predetermined life of up to 2 years and again
would trade on the CBOE.
Warrants, while
somewhat similar, have some different features. Warrants are issued by the
company (not written by an investor) in connection with a stock offering or
financial arrangement and can have a life of even 5 years or more.
The basic definition is the same,
being, a warrant gives the holder the right, but not
the obligation, to acquire the underlying security at a specific price and
expiring on a specific date in the future. The length of the warrant, whether
2 years, 3 years, 5 years, etc. is determined by the company and is part of
the negotiating process in the issuance of the common shares along with the
predetermined exercise price.
Investors should be especially
intrigued with those companies that have long-term warrants trading with a
remaining life of over 2 years. The more time the better to give the company
time to execute on their business plan and time for the markets to move up.
Think about it. A warrant, a long
term call if you will, on a company that you like that greatly limits your
cash outlay while offering you the potential for great gains. The leverage is
the key to warrants, a greater gain on your investment dollars.
If you need more information you can
visit our Learning Center.
We saw this interesting quote
recently:
...."if we
are all in the parade who is going to watch us walk by"
Think about this the next time you
try and convince a friend or family member to invest in resource shares or
warrants. Most just don't get it, at least, not yet.
...."Get
yourself positioned to take advantage of this once in a lifetime ride."
Dudley Baker
PreciousMetalsWarrants
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