Replies to post #120 on Catalyst Pharmaceutical Partners (CPRX)

[bellweather1]

Your assertion that there is some difference (or inconsistency) between my two following statements:

This entire exchange started with your assertion that the value of the CPRX warrants was only $.30, while I suggested these were closer to $.77.

Vs

we both know that the real price today(if you bought through the financing) was closer to .77/share

is essentially a distinction without a difference, because the crux of the disagreement remains the same.

Namely, you suggested the CPRX warrants were only worth about $.30,while I suggested these were worth “…closer to $.77”

Bearing in mind that the price of a warrant is included in the price($2.30) of 2 issuance shares, since the warrant is effectively a discount from the price of those shares, saying the warrants are worth $.77 is essentially equivalent to saying the shares are really selling for $.77 each(b/c $2.30-$.77=$1.53/2= $.765/share).

By the same token, saying the "real price" of the issuance shares is $1.15, is essentially the same as saying the warrants were free(as per the above).


Regarding Black Scholes, I can understand you choosing to have “…nothing further to add to this discussion”

Because,
to disclose your Black Scholes parameter assumptions (supporting your $.30 estimate of warrant value) would only underscore how unfounded these assumptions were, and by extension, your warrant value estimate.

The only way one could "reasonably" conclude, via this model, that the value of these warrants was so ridiculously low, would be to use an equally low volatility parameter.

Since even a "relatively" stable and established biotech like Ariad has a current implied vol of 70.5%, a penny stock like CPRX, (regardless of what we may think about it's value), would certainly be accorded a higher volatility parameter(if options were available for it).

Nevertheless, at Ariad's current implied vol(70.5%), with the following Black Scholes parameters(strike price1.30,stock price1.15, time(days)2008(i.e.5.5years),& risk free interest.13)plugged in for CPRX, the warrant/call price is approx $.66.

http://www.tradingtoday.com/black-scholes?callorput=c&strike=1.30&stock=1.15&time=2008&volatility=70.5&interest=.13

Since Ariad’s Hist.vol is currently 65.5% while CPRX’s is 79.5%, a proportional estimate of what CPRX’s implied vol would be (if options existed), while not perfect, would suggest79.5/65.5x70.5%=85.57%.

With this volatility parameter value plugged in (and with the other values the same as above), the CPRX warrant/ call value is (coincidentally???) calculated to be $.7658.

http://www.tradingtoday.com/black-scholes?callorput=c&strike=1.30&stock=1.15&time=2008&volatility=85.57&interest=.13

In view of the above, I can, once again, understand why you chose to add “…nothing further to…this discussion.”

Suffice it to say, your estimate, however determined, (since you refused to provide your parameters), wasn’t remotely correct;

While mine, though admittedly only an estimate, is clearly in the ballpark.


Now, who’s refusing to simply admit their mistake(s)?