Pinetree Warrants pnp.wt and pnp.wt.a

[rhuygens]

Thanks for reading - I'm hoping you out there can explain something to someone relatively new at this but eager to learn. 

PNP.WT is a Pinetree warrant with a $15 strike that is valid to April 2012.  Optimists who buy these warrants are willing to pay around $1 these days.  PNP.WT.A is a new warrant with an October 2012 expiry and a $6.50 strike price.  So I did the math and calculated...
 - if Pintree sold at about $11.50 or more by 2012, then PNP.WT.A would give a better return than the underlying stock itself
 - Pinetree would have to sell at around $20 by 2012 for PNP.WT to give a better return than the underlying stock
 - Pinetree would have to sell at over $25 by 2012 for PNP.WT to give a better return than PNP.WT.A

If my math is right (I'm pulling these figures from memory, but they are really close), why on earth would anyone buy PNP.WT?  Volume is pretty low on both as it is, but I'm curious what it is that I don't understand that would lead anyone to buy PNP.WT.  Any insights?

[sunseeker]

rhuygens

Let me be the fist to welcome you to this site .
I am sure that you will find as I have that we have a good mix of experience, and opinions amongst our membership.

I haven’t dabbled in warrants for some time, but for what it’s worth I will venture my opinion.
Firstly there are two different PNP warrants, for want of a better word the ordinary ones which you mentioned, and the A warrants.

Using a  formula which is loosely based around the Black-Scholes model then I calculate that for the ordinary warrants it would require a 46.84% rise year on year until the expiry date 16th April 2012 just to break even.

The A warrants would require a 27.29% year on year rise until expiry 23rd October 2012 to break even.

So neither of the warrants look promising to me either.

Be Lucky.

[adriandunn]

I agree that both sets of warrants are overpriced relative to the current stock price, however the past volatility in PNP somewhat justifies their current prices.  Personally I wouldn't buy anything other than the underlying stock, and even then would wait for an opportunity closer to $3.50 to get in - I haven't looked at or updated my PNP valuation spreadsheet for a while, however I think they are still trading for more than NAV, which is rarely a good deal.

I initially sounded the bell on PNP's overvaluation about a year ago, and eventually their stock price came back to earth.  I've got another example of a closed-end fund which also is very overvalued, currently trading at about 220% of NAV: XCM.TO.  I won't bother going into all the details, however I believe it is definitely a good short above $3, which you could (if you wanted to) hedge by buying about 3x the value in shares of their underlying portfolio of CIBC stock (CM, or CM.TO).

One wrinkle is that it is tough to borrow, just like PNP.TO was back when it was trading up to $16 ($32 pre-split), but if you are persistent enough you will find a locate (I got my locates through Interactive Brokers, but the stock wasn't available to borrow on Friday.)

Happy investing!

[john77]

On an up day on the TSX, PNP was down 8% and it is sitting right at 3.50. Anyone here thinking of taking a nibble?

[adriandunn]

Bought a bit of PNP at the end of the day at $3.20 with some of my profits from the XCM.TO short.  Still holding most of the short, as I believe it will go lower, and the easy money has now been made in XCM.TO.

Waiting for a break through $3 before picking up more PNP - I like to buy things at a discount, and think that further carnage in the commodities could whack Pinetree down pretty hard, as they may get hit with margin calls like they did last August.  If you're lucky, you might be able to pick some up at $2.50 or lower if we another day or two like today.

[jjj000]

I had my stink bid on PNP set to $3.00 a few weeks ago, but I cancelled it today.  Too risky buying in right now, IMO.  (Was TSX up today??  I thought it got hammered down 3%??)

Some indicators say we are oversold today on uraniums, but TA isn't worth a damn during times of carnage, I don't think, no matter what kinds of lines you draw.  We could be oversold for weeks at this rate.  I'd rather wait and see.

Nice job on the XCM short, though, adrian.  But I can't imagine there are many margin calls at this point though that will affect uraniums.  No one will be selling any uraniums at this point to cover losses in other margined positions... simply b/c there aren't any gains to be had from uraniums.  Gold producers obviously, potash stocks sure, silver producers probably, platinum yes.  But not these junior uraniums... not now.  Volumes seem pretty low on the uraniums right now, too, particularly compared to the last fleecing we took.  Save for specific ones in the news like FRG/AXU and DNN.

But I don't know... like I said I think login and TA is kind of a wash at this point if panic controls the flow of things.  If people flee from gold then they'll flee from u3o8 as well... at least that's been the pattern lately...