We’re doing a warrants talk, and a lifetime trader is crazy-stoked.
He’s like, “No one ever does that… this is amazing.”
And it’s true. No one talks about warrants.
And I complain about it all the time. Just ask my crew, who I’ve found is regularly trading warrants.
One of Warren Buffett’s largest purchases in recent years is a stock Occidental Petroleum (OXY), that trades warrants, in addition to the stock.
Archer Aviation (ACHR) has also issued warrants we can trade.
We talked about ACHR yesterday. My boy Riley at Godspeed has been pounding the table on it.
What Is a Warrant?
Warrants are almost exactly like options. Warrants are derivatives, for example, and they trade on public exchanges.
A warrant also gives the holder the right, but not the obligation, to buy a certain number of shares of a company’s stock.
The price is predetermined, and the time period is defined too.
The big difference is options are issued by an exchange.
Warrants are issued by a company such as Occidental Petroleum or Archer Aviation.
This means warrants align the company’s incentives with investors—unlike options, which are purely market-driven.
Options have many strike prices and expirations. But warrants just have one strike price and one expiration date.
It is possible for a company to issue multiple separate warrants with different strike prices and expiration dates.
But it’s nothing like the long options chains you’ll see for big, liquid stocks in the options market.
Often, investment bankers will go to their clients with something they call “units.”
“Units” will normally consist of one share of common stock plus one warrant, though sometimes it’s one share of common stocks plus two warrants.
It’s something the big banks only share with their biggest accounts.
Warrants We Want
Not many companies issue warrants.
They’re usually smaller-cap stocks that want to further incentivize investors to invest in their companies by offering a “kicker.”
And a warrant is effectively a call option on the stock itself.
Here’s the thing that has us interested…
If the option is in the money, or even almost in the money, it’s not worth holding. We can just own the stock.
Now, a warrant can be helpful when the strike price is “out of the money.” That means the price of the common stock is still well below the strike price for the warrant.
Let’s illustrate the setup with a stock that trades warrants, The Metals Company (TMC):
This is a $1 billion company that mines for minerals on the ocean floor.
This is a big base defined by the green arc.
And we’re looking for a breakout above former resistance, defined by those red arrows.
I was hanging out this week with my friend Matt Warder, my go-to guy for all things natural resources.
He’s a fundamentalist.
Yeah, I said it – I do have friends who are fundamental experts in certain segments of the market.
They’re good friends. And they’re really really smart friends.
I know I can turn to them whenever I have questions about things I know little about.
Deep sea mineral mining is one of those things, lol. What the heck do I know about this stuff?
I know about baseball, wine, and supply and demand behavior in financial markets. After that I got nothing.
I’m the dummy at the Home Depot (HD) lost in the aisles looking for the guy in orange.
I don’t even know how to open the hood of the car, which is probably for the best.
I know what I know. And I know what I don’t know.
So it’s great to be surrounded by experts in many fields who will always take my call.
Matt Warder, the “King of Coal” and the man of all things natural resources, is one of those guys.
He tells me The Metals Company uses some kind of vacuum mechanism to scrape the ocean floor for minerals.
Its tools are particularly above these ancient underwater volcanoes.
That’s pretty cool.
And we can trade TMC warrants.
You can find them through your brokerage account. They trade just like stocks.
Depending on your system, a warrant will usually have a “W” or a “WT” or a “WS” designation attached to the ticker symbol.
The warrant for The Mining Company (TMC) trades under the symbol TMC.WT.
The warrant for Archer Aviation (ACHR) is ACHR.WT.
So, yes, a warrant is just another ticker symbol we can trade.
And, when it makes sense from a risk-vs-reward perspective, we’ll look to go long, perhaps ACHR.
This one could happen soon.
When the setup is right – such as ACHR’s potential move – it’s a secret worth sharing.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs