Hello- I am trying to understand the value of leverage by using warrants instead of common stock. The ticker in question is CFW.T Do warrants tend to move in lockstep( same $ value increase vs same % increase) with the common shares, but giving you multiple times the leverage? In this case the common shares are approx 4$ and warrants are 2$. essentially i can buy twice as many warrants and get twice the leverage here. there are 3 years remaining on the warrants and they are .50$ away from being in the money as the exercise price is $2.50 so i would be breakeven when the common stock hits $4.50 what do you think of purchasing a few of them at this price point.
Warrants are equivalent to long term options. They provide leverage but that doesn't kick in unless the underlying moves up sharply. In a 1:1 comparison, on an expiration basis, to the upside, the warrant's gain will always lag the common by 50 cents. ROI will be higher. In a 1:1 comparison, on an expiration basis, to the downside, the warrant will lose less below $2. On a 2:1 basis (twice as many warrants), on an expiration basis, the stock does better than two warrants. Above $5, two warrants will make twice as much as 100 common shares (per dollar rise).
