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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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