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Post by traderdennis on Aug 3, 2018 11:23:46 GMT -5
Unless scripts do run and share price follows ... like a rocket. And if that happens, warrant holders will still sell calls in October or sooner, pocket option premium and then exercise the warrants. |
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Post by cretin11 on Aug 3, 2018 11:38:26 GMT -5
Exactly, and hence the 1% estimate - that has about a 1 in 100 odds of happening in the warrant time frame, would you agree? Dennis explained why even if the "rocket" happens the warrants still won't exercise. He might be right but i don't totally follow his logic on that. Lets say on october 31st, the share price is $2.50 per share. 1. You can sell a 2.50 call December call for probably 30 cents (stock price at $2.50) a piece which is greater than the 12 cents you could get today by flipping the shares. Volume would have to justify flipping millions of shares, or there would be slippage. If the price moves down from 2.50 then you get to do it again in January or Feb. If the price goes up, you get the option premium plus they sell shares at $2.50 they pay for at 2.38 and get their 12 cents a share. If you look at the January'19 MNKD options, there are about 7 million shares of sold call options in the 2-4 dollar range. Many I would think were warrant holders already executing this strategy. These warrants have no incentive to exercise early. OK thanks for that explanation, I think I follow it now. To play devil's advocate, in that scenario isn't there a chance the holder would prefer to flip the shares (even though it would be less than the Dec call premium) for fear that selling Dec $2.50 calls would leave him hanging onto the shares longer than he wants? In other words, if he expects share price to plummet before Dec so he'd rather be out? |
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Post by kimi on Aug 3, 2018 11:39:42 GMT -5
TD - You're genius! How does it come that no one cares? Any ideas?
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Post by agedhippie on Aug 3, 2018 11:57:07 GMT -5
Lets say on october 31st, the share price is $2.50 per share. 1. You can sell a 2.50 call December call for probably 30 cents (stock price at $2.50) a piece which is greater than the 12 cents you could get today by flipping the shares. Volume would have to justify flipping millions of shares, or there would be slippage. If the price moves down from 2.50 then you get to do it again in January or Feb. If the price goes up, you get the option premium plus they sell shares at $2.50 they pay for at 2.38 and get their 12 cents a share. If you look at the January'19 MNKD options, there are about 7 million shares of sold call options in the 2-4 dollar range. Many I would think were warrant holders already executing this strategy. These warrants have no incentive to exercise early. OK thanks for that explanation, I think I follow it now. To play devil's advocate, in that scenario isn't there a chance the holder would prefer to flip the shares (even though it would be less than the Dec call premium) for fear that selling Dec $2.50 calls would leave him hanging onto the shares longer than he wants? In other words, if he expects share price to plummet before Dec so he'd rather be out? The warrant underwrites the Call so the warrant is only exercised if the Call is exercised. If the price plummets the Call will not be exercised so the warrant holder can sell Calls again still being underwritten by the same warrants. This continues until the warrants expire and you never need to own the shares so you don't care what the price does. I use a variant of this where I hold the warrants in stocks I think will do well, sell Calls and collect premiums while I wait for results. Think of it as a covered Call, but without having to hold the stock. |
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Post by babaoriley on Aug 3, 2018 12:04:07 GMT -5
I agree, zero is too low. It’s gotta be closer to a one percent chance. Maybe 2%? The call premiums are probably the best indicators. I spoke of zero chance the warrants exercise. I stand my that percentage since if the stock was above 2.38 in October it will be better for the warrant holders to either sell short and cover with exercised warrants in April 2019 or to sell calls pocket the premium and cover with warrants if the calls get exercised. Either way the warrant holders make more money than if they exercised at the start of the warrant period. TD, here's an example of a zero chance - you becoming a bull on mnkd stock. See the difference?
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Post by traderdennis on Aug 3, 2018 12:55:10 GMT -5
Lets say on october 31st, the share price is $2.50 per share. 1. You can sell a 2.50 call December call for probably 30 cents (stock price at $2.50) a piece which is greater than the 12 cents you could get today by flipping the shares. Volume would have to justify flipping millions of shares, or there would be slippage. If the price moves down from 2.50 then you get to do it again in January or Feb. If the price goes up, you get the option premium plus they sell shares at $2.50 they pay for at 2.38 and get their 12 cents a share. If you look at the January'19 MNKD options, there are about 7 million shares of sold call options in the 2-4 dollar range. Many I would think were warrant holders already executing this strategy. These warrants have no incentive to exercise early. OK thanks for that explanation, I think I follow it now. To play devil's advocate, in that scenario isn't there a chance the holder would prefer to flip the shares (even though it would be less than the Dec call premium) for fear that selling Dec $2.50 calls would leave him hanging onto the shares longer than he wants? In other words, if he expects share price to plummet before Dec so he'd rather be out? If he expects the shares to plummet, then instead of selling calls, he shorts the stock and uses the 2.38 warrants as a hedge. |
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Post by traderdennis on Aug 3, 2018 12:56:22 GMT -5
I spoke of zero chance the warrants exercise. I stand my that percentage since if the stock was above 2.38 in October it will be better for the warrant holders to either sell short and cover with exercised warrants in April 2019 or to sell calls pocket the premium and cover with warrants if the calls get exercised. Either way the warrant holders make more money than if they exercised at the start of the warrant period. TD, here's an example of a zero chance - you becoming a bull on mnkd stock. See the difference?
I was a perma bull in 2014 and 2015. |
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