In our article "Cannabis is on the Rise Again", we introduced our readers to Newstrike Resources Warrants (HIP.WT.CN) trading in Canada. Newstrike is a popular and volatile weed play with a 52-week high of $3.30 and low $0.265 on the Toronto Venture Exchange. HIP.WT was part of a bought deal financing that the company completed a couple of weeks ago. The strike price is at $1.75 and the warrants expire on February 16, 2020. The warrants have an acceleration clause where the company has the option to move up the expiry to as soon as 15 days after notice if the stock price trades above $2.60 for ten consecutive days. This is not really much of a worry at this point, because if the stock does reach that high, the warrants will be intrinsically worth $0.85 and everyone buying now will be very happy.
While we have discussed these warrants before, we are recommending them even more strongly now because they are even cheaper. The stock has risen to $1.27 in the couple of weeks since we first recommended them but the warrants have stayed flat at $0.14. The expiry is 23 months out so the time erosion of two weeks means very little. We think that someone was dumping the warrants and keeping the stock as part of the financing as there was lots of opportunity to load up on cheap warrants on Friday even as the stock was flying over $1.20. Once that seller's warrants dry up, we expect the warrants to go on a huge run as long as the stock doesn't tank.
The warrants trade out of the money so the key to understanding the value of these warrants is to understand volatility. The more volatility the better, and that works both to the upside and to the downside. The best way to illustrate this is to use an example.
Let's say you have the ability to buy 10,000 HIP shares at $1.25 for $12,500 or 30,000 warrants of HIP.WT at $0.15 for $4,500. You are convinced that this stock will either make it big and trade at $5.00, or blow it and trade at $0.10 in two years. Under the successful scenario, your 10,000 shares are worth $50,000, a profit of $37,500 on $12,500 investment. But (and lets assume for simplicity of the example that the warrants weren't called in early) the 30,000 warrants can be exercised for $3.25 worth of profit per warrant, or $97,500. This results in $93,000 in profits on only a $4,500 investment. Even paying up to $0.30 or $0.40 for warrants instead of stock at $1.25 makes a lot of sense in this situation.
Even under the accelerated call-in scenario a warrant holder wins because they can always sell their warrants and buy the stock at that time. If the stock price is $2.75 at early exercise, 30,000 warrants at $1.00 is $30,000, enough to buy 10,900 shares. The investor would have also invested less up front cash. Under our above scenario they would have saved $8,000 ($12,500-$4,500) but even paying up to $0.40 per warrant would cost $12,000, slightly less than the cost of 10,000 HIP shares. Conversely, someone could buy 50,000 warrants at up to $0.20 each and have way more upside at a slightly less cost than the shares. So being able to buy them at $0.14 is a ridiculously good deal. Both the warrants and stock trade with adequate liquidity so there is no issue finding a buyer for your warrants on the day you want to sell them.
Along with increased upside, downside is also less because the investor put less money into the warrants as they would have if they bought the stock. Under our original scenario, if the stock tanks to $0.10, the warrant holder loses their entire $4,500 investment. But the shareholder loses $11,500 if their 10,000 shares drop from $1.25 to $0.10.
The worst case scenario for the warrant holder is if HIP stays stagnant, or under $1.75, for the next two years. The warrants would expire worthless but the stock holders make some money under this situation. So volatility, both to the upside and to the downside, offers a superior investment trade-off for the investor. Therefore, the higher the expected volatility, the greater the value of the warrants.
This is where it gets to the actual valuation part of HIP.WT. Here is an options calculator chart from CBOE:
The price of HIP of $1.27, strike price of the warrants at $1.75 and days to expiration of 700 are all known inputs. The interest rate is auto-inputted based on number of days, but even if it was 0% that would only impact valuation downwards by a penny - as in other words it is not an important variable. Volatility is the key here. A 100% volatility calculates a $0.5719 value for the warrants, over three times their current price. Conversely, a $0.14 price on HIP.WT implies a volatility of only 37.20%. It is very easy to illustrate how ridiculously low a number like that would be on this stock.
Look at WEED's option chain on the Montreal Exchange:
The screen shot is from March 13 because the website was down for maintenance at the time of this update but the values will not change much over those few days. The 30-day historical volatility has been 102.7%. Even the longest-dated options expiring in February 2019 have implied volatility of around 67% on the calls and around 89% on the puts:
WEED is trading at a $6.5 billion market cap in Canada, over ten times higher than HIP's market cap of $612 million. A larger cap stock is going to have much lower volatility than its junior counterpart, so a 100% volatility assumption on HIP when WEED has a long-dated call option implied volatility of around 65% and historical 30-day volatility of 102% seems like a conservative enough assumption. Even using 65% would lead to a fair market value of over $0.33 for HIP.WT.
Another warrant set that we would like to discuss is XMG.WT.A, warrants on MGX Minerals (XMG.CN). These warrants expire on May 5, 2019. The strike price is $1.15 which is the exact price of the stock in Canada right now. These warrants work very much in the same way as we illustrated above with HIP.WT. MGX Minerals is in the popular and volatile lithium, magnesium and battery tech space and recently released a PEA with an NPV of $530 million and has only a $90 million $CAD market cap. So the stock has a lot of upside potential. In January the stock traded over $1.80 and XMG.WT.A as high as $0.80 but are at $0.32 now. Using the same 100% volatility assumption on XMG as HIP, the warrants should be worth $0.476 instead of $0.32. The implied volatility on XMG with the warrants at $0.32 in 64.24%. So these warrants aren't as good of a deal as HIP.WT, but something to consider nonetheless.
If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 494 followers despite not giving out a lot of alerts, a fact that we think is indicative of a diligent and prudent stock picking history. If you would like to share this blog, make sure to use the URL "nasdaqnewsreports.blogspot.mx" as certain spam filters on social media don't let you post blogspot.com addresses.
Disclosure: We are long stocks listed in this report.
Bitcoin has gone from a concept worth pennies a few years ago to worth thousands of dollars. It may appear to some who are late to the game that the opportunity to get rich is gone. However, there are still plenty of ways to make some money trading in bitcoin and other cryptocurrency. Here are some links to valuable reports and strategies:
The Cryptocurrency Codex from the Cryptocurrency Institute
Secrets To Unlimited Free Bitcoin
The Crypto-Currency Evolution eBook
Bitcoin Complete Guide for Dummies
The Bitcoin Miracle Guide
The Bitcoin Cheat Code Book
The Crpytocurrency Course
Bitcoin Investing Live
If you're interested in making money investing or trading the stock market, here are some good resources to assist you. This includes technical analysis, investing in the weed sector, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies.
Microcap Millionaires Free Video: Cheap Gold Miner Set to Soar in Fall 2017
The dividend stock report from dividendstocksonline.com
While we have discussed these warrants before, we are recommending them even more strongly now because they are even cheaper. The stock has risen to $1.27 in the couple of weeks since we first recommended them but the warrants have stayed flat at $0.14. The expiry is 23 months out so the time erosion of two weeks means very little. We think that someone was dumping the warrants and keeping the stock as part of the financing as there was lots of opportunity to load up on cheap warrants on Friday even as the stock was flying over $1.20. Once that seller's warrants dry up, we expect the warrants to go on a huge run as long as the stock doesn't tank.
The warrants trade out of the money so the key to understanding the value of these warrants is to understand volatility. The more volatility the better, and that works both to the upside and to the downside. The best way to illustrate this is to use an example.
Let's say you have the ability to buy 10,000 HIP shares at $1.25 for $12,500 or 30,000 warrants of HIP.WT at $0.15 for $4,500. You are convinced that this stock will either make it big and trade at $5.00, or blow it and trade at $0.10 in two years. Under the successful scenario, your 10,000 shares are worth $50,000, a profit of $37,500 on $12,500 investment. But (and lets assume for simplicity of the example that the warrants weren't called in early) the 30,000 warrants can be exercised for $3.25 worth of profit per warrant, or $97,500. This results in $93,000 in profits on only a $4,500 investment. Even paying up to $0.30 or $0.40 for warrants instead of stock at $1.25 makes a lot of sense in this situation.
Even under the accelerated call-in scenario a warrant holder wins because they can always sell their warrants and buy the stock at that time. If the stock price is $2.75 at early exercise, 30,000 warrants at $1.00 is $30,000, enough to buy 10,900 shares. The investor would have also invested less up front cash. Under our above scenario they would have saved $8,000 ($12,500-$4,500) but even paying up to $0.40 per warrant would cost $12,000, slightly less than the cost of 10,000 HIP shares. Conversely, someone could buy 50,000 warrants at up to $0.20 each and have way more upside at a slightly less cost than the shares. So being able to buy them at $0.14 is a ridiculously good deal. Both the warrants and stock trade with adequate liquidity so there is no issue finding a buyer for your warrants on the day you want to sell them.
Along with increased upside, downside is also less because the investor put less money into the warrants as they would have if they bought the stock. Under our original scenario, if the stock tanks to $0.10, the warrant holder loses their entire $4,500 investment. But the shareholder loses $11,500 if their 10,000 shares drop from $1.25 to $0.10.
The worst case scenario for the warrant holder is if HIP stays stagnant, or under $1.75, for the next two years. The warrants would expire worthless but the stock holders make some money under this situation. So volatility, both to the upside and to the downside, offers a superior investment trade-off for the investor. Therefore, the higher the expected volatility, the greater the value of the warrants.
This is where it gets to the actual valuation part of HIP.WT. Here is an options calculator chart from CBOE:
The price of HIP of $1.27, strike price of the warrants at $1.75 and days to expiration of 700 are all known inputs. The interest rate is auto-inputted based on number of days, but even if it was 0% that would only impact valuation downwards by a penny - as in other words it is not an important variable. Volatility is the key here. A 100% volatility calculates a $0.5719 value for the warrants, over three times their current price. Conversely, a $0.14 price on HIP.WT implies a volatility of only 37.20%. It is very easy to illustrate how ridiculously low a number like that would be on this stock.
Look at WEED's option chain on the Montreal Exchange:
The screen shot is from March 13 because the website was down for maintenance at the time of this update but the values will not change much over those few days. The 30-day historical volatility has been 102.7%. Even the longest-dated options expiring in February 2019 have implied volatility of around 67% on the calls and around 89% on the puts:
WEED is trading at a $6.5 billion market cap in Canada, over ten times higher than HIP's market cap of $612 million. A larger cap stock is going to have much lower volatility than its junior counterpart, so a 100% volatility assumption on HIP when WEED has a long-dated call option implied volatility of around 65% and historical 30-day volatility of 102% seems like a conservative enough assumption. Even using 65% would lead to a fair market value of over $0.33 for HIP.WT.
Another warrant set that we would like to discuss is XMG.WT.A, warrants on MGX Minerals (XMG.CN). These warrants expire on May 5, 2019. The strike price is $1.15 which is the exact price of the stock in Canada right now. These warrants work very much in the same way as we illustrated above with HIP.WT. MGX Minerals is in the popular and volatile lithium, magnesium and battery tech space and recently released a PEA with an NPV of $530 million and has only a $90 million $CAD market cap. So the stock has a lot of upside potential. In January the stock traded over $1.80 and XMG.WT.A as high as $0.80 but are at $0.32 now. Using the same 100% volatility assumption on XMG as HIP, the warrants should be worth $0.476 instead of $0.32. The implied volatility on XMG with the warrants at $0.32 in 64.24%. So these warrants aren't as good of a deal as HIP.WT, but something to consider nonetheless.
If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 494 followers despite not giving out a lot of alerts, a fact that we think is indicative of a diligent and prudent stock picking history. If you would like to share this blog, make sure to use the URL "nasdaqnewsreports.blogspot.mx" as certain spam filters on social media don't let you post blogspot.com addresses.
Disclosure: We are long stocks listed in this report.
Bitcoin has gone from a concept worth pennies a few years ago to worth thousands of dollars. It may appear to some who are late to the game that the opportunity to get rich is gone. However, there are still plenty of ways to make some money trading in bitcoin and other cryptocurrency. Here are some links to valuable reports and strategies:
The Cryptocurrency Codex from the Cryptocurrency Institute
Secrets To Unlimited Free Bitcoin
The Crypto-Currency Evolution eBook
Bitcoin Complete Guide for Dummies
The Bitcoin Miracle Guide
The Bitcoin Cheat Code Book
The Crpytocurrency Course
Bitcoin Investing Live
If you're interested in making money investing or trading the stock market, here are some good resources to assist you. This includes technical analysis, investing in the weed sector, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies.
Microcap Millionaires Free Video: Cheap Gold Miner Set to Soar in Fall 2017
The dividend stock report from dividendstocksonline.com
The dividend stock report from Dividend Stocks Rock
Top rated signals for binary options from binaryoptionsprosignals.com
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review shows how to time the market with its "Percent of X" indicator
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
Try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
Top rated signals for binary options from binaryoptionsprosignals.com
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review shows how to time the market with its "Percent of X" indicator
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
Try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
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