So the warrants are basically just a derivative. If you are familiar with options trading, this will be very simple to understand.
1 warrant = 1 VKTXW
1 VKTXW = the right to buy 1 share of VKTX for 1.50 on OR anytime before ?may of 2021.
For whatever reason (people’s ignorance is my guess), the warrants are trading at face value. Why anyone would purchase a share of VKTX instead of a share of VKTWX at this point is beyond me... but I digress, and it’s just my opinion.
So here’s how your example would work...
Buy 100 shares of VKTX at 6.5 = $650
Or
Buy 100 shares of VKTXW at 5 = $500
A few possibilities and the math...
Share price goes to $10
100 shares of VKTX now worth $1000
Profit = $1000 - $650 = $350
Profit = 1000/650 = 1.53 = made 53% on your money
If people still unwilling to pay any premium for time, and warrants trading at face value (or liquidity prevents you from selling them at fair value and you have to exercise them to get the shares which you sell after you receive them (takes 3-5 business days to get them, from E*TRADE at least in my experience))...
100 shares of VKTXW now with inherently worth $8.50 (10.00-1.50 exercise cost)
So 100 shares of VKTXW = $850
Profit = $850 - $500 = $350
Profit = 850/500 = 1.7 = made 70% on your money
So you see that you will make exactly the same profit by buying the same amount of one or another, but the profit will be a larger percentage on the money you invested.
Also, what people fail to grasp, is this...
If I know I want to invest $1000 in Viking...
I can get 153 shares of VKTX at 6.5 per share...
Or I can buy VKTXW,
I get 200 shares of VKTXW at 5.0 per share
So take the same example...
Invest $1000 in Viking at current prices...
VKTX = 1000/6.5 = 153 shares VKTX
VKTXW = 1000/5 = 200 shares VKTXW
Price of Viking goes to $10
VKTX = 153 x 10.00 = $1530
Made 530.00 on my $1000
VKTXW = 200 x 8.5 = $1700
Made 700.00 on my $1000
See the profit ratios preserved, for this example.
So the limitations of warrants...
Less liquidity... price moves up real fast and you want to sell, people may not want to instantly pay the inherent move in the price. If you day trade or have a habit of panic selling during times of profitability, this may not be for you.
Say it’s 2021 and the stock has done awful... if the stock is worth anything less than 1.50, your warrants will expire worthless.
Anything above 1.50, and you can just request the shares, pay the 1.50 for them, and either sell them for the profit difference or just hold onto them.
For me though, that isn’t a negative at these price levels. Because the warrants cost less, it also limits my loss imho if the stock turns to junk, which seems unlikely, but hey, anything is possible.
If I buy the stock for 6.5 and it goes to $1, and I going to be any less upset than if I bought a warrant for 5.00 and it is now worth $0...
Epic failure is epic failure...
So the warrants, as long as people continue to be willing to sell them for what they are inherently worth and not charge extra for the value of time, allows me to amplify the earnings on my total amount invested, which I will gladly trade for reduced liquidity.
If you love to day trade, you could consider adding some warrants as a long position, to supplement the regular shares you day trade.
Keep in mind, as long as the warrants keep trading for what they are inherently worth, you will increase the magnitude of your earnings vs buying the shares, the lower the price of the stock.
Once people stop being spooked by how quickly this stock has risen, the warrants will likely again start paying a little bit of a time premium. If our data coming up is really good, people will claw for any shares they can get, and will be more willing to pay more for the warrants which is the same as basically buying yourself a share, knowing that they are paying less than the share costs anyways, and that they will overall make more percentage on their investment if the stock keeps going up.
Hope you like math ;)
If all this is above your head, at least I tried!
Consider this my good deed for the month. The fewer people that know all this, the tighter my monopoly remains of trading all this stuff :) muahahaha.
Waffles
