Anyone trading warrants?

[beepbeep]

I bought some natural gas warrants last few weeks and they have been rocketing since then.

It's all little too exponential for me so I would like to hear some input from people who know these things better.

Feel free to fill in with wise toughts/info/whatever.

[juanbenae]

i burn a wood stove for heat. prefer oak or yook, madroan in a pinch.

[HardDrive]

Originally posted by beepbeep
I bought some natural gas warrants last few weeks and they have been rocketing since then.

.

What do you mean by 'warrants'? An investment of some kind?

[KevinP73]

I think I've got a warrent, but it may be federal ............don't tell no one OK?

[dad911]

Warrants are basically an offer to buy stock at a fixed price (at a fixed date in the future). Great to have if the stock is trading above warrant price at purchase date, absolutely worthless if the stock is below warrant price.

[HardDrive]

Ok....so these a just standard commoditys futures, yes?

[juanbenae]

i thought we were talking about heating our house??

[Joeaksa]

I bought 2% of a wildcat oil/gas well back in the 70's. It ran out of oil after 12 years but has been paying off on natural gas ever since. Best investment I ever made...

JoeA

[competentone]

Originally posted by HardDrive
Ok....so these a just standard commoditys futures, yes?

No, a warrant is more like an option, your risk exposure is usually limited to what you pay for the contract. If you are trading a commodity future you are holding a position to actually buy or sell that commodity and your risk exposure depends on how much the commodity changes in price -- which could be extreme since most futures contracts are purchased on margin.

Specific to Beepbeep's comment: I've traded penny stocks before (crazy risk) but actually haven't traded options. Last night though, I was just looking at the puts on Google -- Google looks to me like it's some sort of "mini internet bubble" that has to come crashing back to reality at some point. The challenge is determining the time-frame when it is likely to crash and buying the puts with the right expiration date at the right strike price to actually make money. Betting against the investing public's irrationality can be a dangerous thing to do...

As for natural gas, I don't follow the supply/demand news, but know its fallen dramatically off its highs; that could reverse itself with a blast of Canadian air dropping the temperatures for a few weeks -- the expected up-tick in demand could push prices up again. I like the idea, when considering whether to hold or sell a position in an investment, to ask yourself whether, if you had the cash that that investment represents, would you spend it to buy your current position? If you say "no," it's probably best to sell; if you say "yes," then hold.

I also like the philosophy of "You never will go broke taking a profit."
I just used that idea yesterday when I took a $40 profit on a penny stock I had purchased the previous day, rather than seeing if it would run farther where I might have made a few hundred dollars on the trade instead. I may say "aw, shucks" if I see this penny stock run higher next week, but will still be satisfied that I made a few dollars on the trade.

[TyFenn]

No actual experience.

Big risk for a decent return (assuming x goes up considerably minus taxes and fees). Especially weighed against an option such as google. I'm sure I don't need to tell you about that stock. I applaud the move though. I just finished reading Education of Speculator by Victor Niederhoffer. From what I understand, based on the book (amongst others) is that to make big money in that market you need big money. Moving a smaller amount of money around multiple times will kill your return in taxes (plus more chances of making a wrong move) inspite of decent gains.

Also in the book, the author (who traded the yen) talked about the things that went through his mind while making these trades - sure sounded exciting.

Beepbeep, I bet your pretty pumped. Natural gas has had a fabulous run. Any other ideas?

[beepbeep]

This is just pure luck I believe. Gazprom (russian oil company) had a dispute with Ukraina about routing of gas pipelines trough Ukrainian teritorry and prices Ukraina had to pay.

They settled the dispute and I believe Ukraina has to to pay much more for Russias natural gas than before. They paid 5:th of market price before, but now they have pro-west goverment and Putin decided to punish them.

That move probably pumped gas prices and they are likely to climb further during winter. Euro winter isn't over and it's going to get colder. I also heard that Gazprom stock is officially released for trade in Russia tomorrow which should trigger a short spike.

Of course, warrants are highly volatile and probably more akin to gambling than investment/saving.

[Porsche-O-Phile]

What's the difference between that and an option? Warrant is on a commodity and option is on a stock?

[beepbeep]

Warrants are typically issued by companies, although they can also be issued by third parties, explains Don Chance, a finance professor at Virginia Tech's Pamplin College of Business. Companies often issue warrants as a "sweetener" to a bond or preferred stock offering, thus lowering the interest rate they have to pay.

Another big difference between a warrant and a call option is the duration of the contract. While warrants tend to have expiration dates that can extend as far as 15 years, your typical stock option tends to be much shorter, say, a matter of months.