Why oh why would anyone want to buy a warrant TODAY in order to convert it to a share of common stock? The warrant has a five year time premium built in.
My take is that if you have some sort of long term time frame in mind, say for the example two years, then one has to compare the expected performance of the stock versus the warrant on a price adjusted basis. SGLB has indicated no desire to pay a dividend, so that is not a consideration. I will use a pps of 3.50 and a warrant price of 1.40 to reflect today's prices. I WILL ROUND to make the napkin math easy. Price of converting a warrant to a share of $4. I am leaving out transaction costs such as brokerage fees.
Suppose one were to buy 1000 shares - price would be $3,500
For the same amount of money you could buy 2500 warrants - AT the time of sale, these could either be traded directly as warrants (only two years into a five year period) or could be converted at a cost of $10,000
Suppose in two years the pps is $4.50
Shares show a $1000 profit
Warrants, IF converted show a $1000 loss
Suppose in two years, the pps rises to $5.40
Shares show a $1.90 gain = $1900 profit
Warrants IF converted would be a wash
Suppose in two,years the pps rises to $20
Shares show a $16.50 gain = $16500 profit
Warrants IF converted show a gain of $14.60 per share (cost plus 4) for a $36500 profit
I know I am leaving out taxes - long term v short term (as warrants and shares are different instruments) but "in the money" warrants with three years of the time premium left are marketable at or nearly equivalent to the current share price, thus minimizing that issue.
Warrants will allow for a control of a greater number of shares. They make sense to me for holding longer periods of time, as they can multiply possible gains. The $ I have in SGLB is kind of "ALL OR NOTHING" $ for me, (this is the first penny stock I have ever owned and at the top of the page in my trading journal I wrote to myself how risky this one is - so I never put in more than I was willing to lose) so my personal action was to cash out many shares and buy warrants. Yes, there is no ability to,write off the losses in the shares as I quickly bought warrants. (No, I am not willing to argue to the IRS that the shares and the warrants are sufficiently different to constitute a difference that would allow me to write off the loss....but before I file my tax return next year I will talk to an accountant more conversant with the subtleties of the tax code than I). IF Sigma goes big, as I expect it to over the next couple of years I doubt anyone will shed a tear for my inability to write off these losses.
patience and GLTA
AI
