REEF.W19 really?

anubis · 1 REEF.W19 really? Wed Oct 31, 2012 2:36 pm

anubis

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Ok, I had bought this counter without any analysis simply because it's such a speculative share. I vaguely remember that there was an argument about this warrant being safe because it's conversion date is in 2015 and by that time the REEF.N share would be appreciated enough such that the conversion would be profitable. But really, does that argument make sense?

Assume I bought W.19 @ 5.00, so with a conversion price of 40 rupees, my total cost would be 45 Rs. That means I'm expecting REEF.N to reach around 60 Rs at least so that I can make a descent gain. Now, do you see the problem here?

My gain if I buy W.19 = 60 - 45 = 15 Rs per share.

But we know that REEF.N currently trades around 30 Rs. What if I buy REEF.N directly and sell it at 60 Rs in 2015? I can get 30 Rs a share!

So, if you are buying W.19 with the above argument, you are being stupid (unless if you can point an error in my argument). On the other hand if you are buying W.19 for it's speculative nature, then that's at least justified.

Please correct me if I'm wrong Smile

Cheers!

Jiggysaurus · 2 Re: REEF.W19 really? Wed Oct 31, 2012 3:01 pm

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There is something called selling in the market without converting, also there is something called percentage gain.

Slstock · 3 Re: REEF.W19 really? Wed Oct 31, 2012 3:04 pm

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Playing with warrant is high gain high risk.

But if you buy reef.N at Rs 30 and sell at Rs 60 ( arguments sake)

When/if Reef.n moves to Rs 60 warrant will be worth Rs 20 technically.

So Reef.w19 at Rs 5 and selling at Rs 15-20 will be 200-300% gain.

Think percentage gain not price increase.

wmdcf · 4 Re: REEF.W19 really? Wed Oct 31, 2012 3:07 pm

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REEF.W19
for 1000 rupees => 200 shares
200 x 40 = 8000
total cost = 9000
profit = (200 x 60) - 9000 -> 3000

REEF.N
for 1000 rupees => 33 shares
no aditinal cost
profit = (33 x 60) - 1000 -> 1880

Question

anubis · 5 Re: REEF.W19 really? Wed Oct 31, 2012 3:10 pm

anubis

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@slstock: So, basically the whole idea is you sell the warrant without converting?

And the technical value of warrant = REEF.N - W.19 conversion price?

Makes sense.

Thanks for the input.

Cheers!

PS: I guess at some point you have to take into account the fact that appreciation of REEF.N will weigh in the effect of warrants. So, speculating for REEF.N to reach 60 Rs might be a bit too far fetched, but this depends on how many warrants are out there. Need a more detailed calculation study

Last edited by anubis on Wed Oct 31, 2012 3:19 pm; edited 1 time in total

anubis · 6 Re: REEF.W19 really? Wed Oct 31, 2012 3:13 pm

anubis

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@wmdcf: I hope you are joking Smile

Cheers!

PS: Your calculation is wrong. You are investing 9K on warrants and only 1k on .N, try investing the same amount and do the calculation again.

Last edited by anubis on Wed Oct 31, 2012 3:15 pm; edited 1 time in total

K.Haputantri · 7 Re: REEF.W19 really? Wed Oct 31, 2012 3:14 pm

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As I understand it, your analysis is somewhat correct, except for the heavy risk & opportunity cost of the amount of money you have to block if you were to buy REEF.N @ Rs:30/= now. However, by buying REEF.W19 @ Rs:5/= you have cut down on both the risk & opportunity cost.

wmdcf · 8 Re: REEF.W19 really? Wed Oct 31, 2012 3:16 pm

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But I invest 8k in 2015. not now.

@anubis wrote:@wmdcf: I hope you are joking

Cheers!

PS: Your calculation is wrong. You are investing 9K on warrants and only 1k on .N, try investing the same amount and do the calculation again.

anubis · 9 Re: REEF.W19 really? Wed Oct 31, 2012 3:21 pm

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@wmdcf: That's a good point indeed.

But still the comparison is not straight-forward as you pointed out. You are comparing a 1k investment to that of a 9K.

Cheers!

PS: I guess this is what Hapu also pointed out Smile

hunter · 10 Re: REEF.W19 really? Wed Oct 31, 2012 3:29 pm

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I like this type of discussions.

Just thinking what could be the extreme worse case. (this is already mentioned in the thread)
In case of REEF go busted before 2015 ( I wish not )

.N risk is 30/-
.W risk is 5/-

Perhaps that's the (original) idea of buying warrants.

anubis · 11 Re: REEF.W19 really? Wed Oct 31, 2012 3:33 pm

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@hunter: Indeed, from this thread I already learned a lot of things about warrants. Actually, now I think about it, warrants make a lot of sense for a company like REEF.N

REEF.N could go bust or could drop down to 20 levels... in which case the warrant holders will have cut their losses while .N holders will be at a comparably worse situation (assuming they bought the same number of shares).

Thanks everybody for your contributions!

Cheers!

Redbulls · 12 Re: REEF.W19 really? Wed Oct 31, 2012 3:36 pm

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@hunter wrote:I like this type of discussions.

Just thinking what could be the extreme worse case. (this is already mentioned in the thread)
In case of REEF go busted before 2015 ( I wish not )

.N risk is 30/-
.W risk is 5/-

Perhaps that's the (original) idea of buying warrants.

Thanks you hit the point.

Slstock · 13 Re: REEF.W19 really? Wed Oct 31, 2012 3:41 pm

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Again think percentage. Up or down. Also note the quantity in hand would change for a flat investment of Rs 10000 ( more warrants than shares)

So if Reef.n crashes to Rs 15 in 2015. The nthe percentage loss will be 50%

But reef.w18 will be worthless maybe Rs 0.1 with no one to buy.

So high risk high gain/loss.

@anubis wrote:@hunter: Indeed, from this thread I already learned a lot of things about warrants. Actually, now I think about it, warrants make a lot of sense for a company like REEF.N

REEF.N could go bust or could drop down to 20 levels... in which case the warrant holders will have cut their losses while .N holders will be at a comparably worse situation (assuming they bought the same number of shares).

Thanks everybody for your contributions!

Cheers!

anubis · 14 Re: REEF.W19 really? Wed Oct 31, 2012 3:46 pm

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@slstock: for a flat investment your argument is true. But assume you are interested in certain portion of the company, like N number of shares.

Loss of .N holder = 30 x N - 15 x N = 15 x N

Loss of W.19 holder = 5 x N

So the warrant holders have cur their losses. For a flat investment that situation is different, .N holders will probably have "something" left over while W.19 holders will go bust.

Cheers!

Slstock · 15 Re: REEF.W19 really? Wed Oct 31, 2012 4:00 pm

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Well if we take fixed shares ( not fixed investment amount) then the opposite
( upward ) will have a comparison problem ( warrant are good percentage wise, if seeling before conversion)

Say you hold N shares ( either . W or .N)

If Reef.N at Rs 60.

Gain for .N holder = 30 x N
Gain for W.19 holder = (20-5) x N

Percentage gain for reef,W is more for lesser investment.

Anyway this should cover most bases on warrant however you look at it.

@anubis wrote:@slstock: for a flat investment your argument is true. But assume you are interested in certain portion of the company, like N number of shares.

Loss of .N holder = 30 x N - 15 x N = 15 x N

Loss of W.19 holder = 5 x N

So the warrant holders have cur their losses. For a flat investment that situation is different, .N holders will probably have "something" left over while W.19 holders will go bust.

Cheers!

anubis · 16 Re: REEF.W19 really? Wed Oct 31, 2012 4:26 pm

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I deleted a post twice because it was confusing Smile

@slstock: from our discussions I gathered the following points:

1. If you are buying warrants to sell without converting, then making a flat investment (compared to the same with .N shares) will give you a big gain percentage wise IF the .N share appreciates as expected. But IF things go really south, you are completely bust compared to the .N investor who made the same initial investment.

2. If you are buying warrants hoping to convert them (i.e buying a fixed number of shares), then warrants give you a certain protection against the company going bust. Because if you buy the same number of .N shares upfront, your loss will be considerably large.

Did I get the summary right this time? Suspect

Cheers!

anubis · 17 Re: REEF.W19 really? Wed Oct 31, 2012 4:32 pm

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I think it's just the point number 1) above that we have seen in action, which is why warrants are called "high-risk high-gain"....

If you think about point 2), warrants are actually much safer than normal shares. But I guess nobody looks at warrants in this way.

Cheers!

hariesha · 18 Re: REEF.W19 really? Wed Oct 31, 2012 5:39 pm

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@ anubis : I think you are still not getting the point of % gain.

I would like to add to what slstock has pointed.

There are more than two years for W19 conversion. So many things can happen in between. We have to think about the % gain with trading opportunities.

Let’s look at the lowest price and highest price of w19 and Reef.N during past six months.

W19 lowest was Rs.2.20 and highest is Rs.9.20
Reef.N lowest was TRs.20/- and highest was Rs.38/-
(Prices taken from my memory didn't check with the past records. I think these figures are correct as I did some good trades on both counters.)

Reef.19 maximum trading gain: 318%
Reef.N maximum trading gain : 90%

So this is the difference.

The logic that when Reef.N comes to Rs.20/-, W19 should go in smoke is true only when it is very close to the conversion date under subdued market conditions. This is because "THE TIME VALUE". When Reef.N hit Rs.20/- about four months back W19 had a value above Rs.2/-.

Look at the two GREG warrants. When you consider the conversion price, no value for the two warrants. But actually they do have value and demand.

What I feel about Reef.N is it's illiquid. The real guys are manipulating the price as they want.

hunter · 19 Re: REEF.W19 really? Wed Oct 31, 2012 5:56 pm

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itching to add something to what @hari and @sls mentioned.

This is my way of explaining...

The derivatives (warrants, rights, non voting) when trading cheaper than the .N (share), they will have an 'amplifying' effect when the share price is changed.
i.e. when share price is changed by x%, the derivative will move more than x%.
It is because, usually the absolute difference (Rs difference) between the two is the same when the prices are changed.
It's like using some leverage to boost your profit.

Am I making things more complicated here ? scratch

Fresher · 20 Re: REEF.W19 really? Wed Oct 31, 2012 8:07 pm

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slstock and some others have got the percentage gain/loss argument spot on.

compare apples with apples, so looking at percentage gain/loss, it is equal risk both ways. But if you are targeting an absolute gain/loss, then yes, W is better to a great extent.

One of the great warrant gains were seen for NTB which I'm sure chinwi has a great experience. Then warrants were new i guess to our people.

Recently warrants have not been successful but I'm hopeful the situation would change in the future. The failure of REEF.W0018 is actually a good thing in W19 perspective.

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REEF.W19 really?

1 REEF.W19 really? Wed Oct 31, 2012 2:36 pm

anubis

2 Re: REEF.W19 really? Wed Oct 31, 2012 3:01 pm

Jiggysaurus

3 Re: REEF.W19 really? Wed Oct 31, 2012 3:04 pm

Slstock

4 Re: REEF.W19 really? Wed Oct 31, 2012 3:07 pm

wmdcf

5 Re: REEF.W19 really? Wed Oct 31, 2012 3:10 pm

anubis

6 Re: REEF.W19 really? Wed Oct 31, 2012 3:13 pm

anubis

7 Re: REEF.W19 really? Wed Oct 31, 2012 3:14 pm

K.Haputantri

8 Re: REEF.W19 really? Wed Oct 31, 2012 3:16 pm

wmdcf

9 Re: REEF.W19 really? Wed Oct 31, 2012 3:21 pm

anubis

10 Re: REEF.W19 really? Wed Oct 31, 2012 3:29 pm

hunter

11 Re: REEF.W19 really? Wed Oct 31, 2012 3:33 pm

anubis

12 Re: REEF.W19 really? Wed Oct 31, 2012 3:36 pm

Redbulls

13 Re: REEF.W19 really? Wed Oct 31, 2012 3:41 pm

Slstock

14 Re: REEF.W19 really? Wed Oct 31, 2012 3:46 pm

anubis

15 Re: REEF.W19 really? Wed Oct 31, 2012 4:00 pm

Slstock

16 Re: REEF.W19 really? Wed Oct 31, 2012 4:26 pm

anubis

17 Re: REEF.W19 really? Wed Oct 31, 2012 4:32 pm

anubis

18 Re: REEF.W19 really? Wed Oct 31, 2012 5:39 pm

hariesha

19 Re: REEF.W19 really? Wed Oct 31, 2012 5:56 pm

hunter

20 Re: REEF.W19 really? Wed Oct 31, 2012 8:07 pm

Fresher

21 Re: REEF.W19 really?

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