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Warrants, Options and LEAPS - It's All About Leverage

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From the Archives : Originally published August 04th, 2010
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FOLLOW : Precious Metals
Category : Gold University

 

 

 

 

Investors looking for a more interesting and potentially rewarding approach to investing in the natural resource shares should investigate the use of warrants, options and LEAPS.

 

The use of all three or any of these investment vehicles positions the investor to maximize their gains in the natural resource sector in the coming months.

 

We are of the opinion the markets will experience a great upsurge soon and the shares of the natural resource companies should perform very well. Of course those savvy investors knowledgeable of warrants, options and LEAPS will do much better so we want to introduce you to each.

 


Options

 

We like to start our discussion with options, namely call options, which are trading on the natural resource shares. Many of you are familiar with call options and basically, a call option allows the holder to purchase the underlying stock at a specific price and expiring on a specific date in the future.

 

Call options can have a life of 30 days and up to 1 year before expiration. You must be right as to your timing and to the underlying company. If you are correct you can magnify your gains and at worst you risk your capital, therefore, you manage risk by the amount you invest.

 


LEAPS

 

LEAPS are like options except that they may have longer terms. The maximum time now on LEAPS is January 2012 giving you approximately 18 months to be right in the direction of the markets and your choice of companies. LEAPS, like options are traded on the Chicago Board Option Exchange, www.cboe.com.

 


Warrants

 

Warrants are very similar in definition to a call option but with a few unique features. By definition a warrant is a security giving 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. But a warrant trades like a security with its own symbol and is purchased through your brokerage account.

 

Warrants are actually issued by companies usually in connection with a financial arrangement, public offering or a private placement. In the resource sector it is extremely common for warrants to be issued in private placements and sometimes, after the required four month hold, the warrants will be allowed by the company to trade.

 

Frequently warrants are issued with a minimum of two years and some have been issued with five or more years of life. You can see the big difference is the time factor when considering options, LEAPS and warrants but some times your favorite company may have not warrants trading and then you should explore whether the company has options or LEAPS available.

 




 


 

The question for each of you is:
1. Are you already in the game? If so, great, just be patient.
2. If not, are you preparing to enter 'the game' and buy a basket of these undervalued junior mining or energy shares or the long-term warrants or LEAPS trading on them?
3. Are you going to wait until prices rise substantially and start to peak before entering 'the game'?

 

Yes, most investors will wait and wait and wait and then buy near the top and then complain that they couldn't make any money and they will blame the markets, the penny stocks and everyone in the business before taking responsibility for their own poor judgment and timing.

 

We are being given the rare possibility of a once-in-a-lifetime-opportunity, what will you do with it?

 

Dudley Baker

PreciousMetalsWarrants

 

  

Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges.

 

 

 

 

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Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges.
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