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[Music] what's up everyone and welcome to jayconomics my name is jay and it's a pleasure to meet all of you on this channel we take a look at anything related to finance with a strong focus on investing so if that sounds like something you want to be a part of then please consider subscribing and liking this video to help me on my quest to befriend the big bad algorithm what's up everyone and welcome back to jakenomics you guys asked for it and so here it is a full in-depth warrant video what they are how they work why we should buy them and how to trade them once you get the hang of it i promise you that it's a lot simpler than you think now before we get into it if you want to grow your portfolio exponentially be sure to check out our smart money squad patreon there are various tiers for your goals and budget you get my buy and sell alerts instantly my weekly watch list and entry points every sunday as well as updates throughout the week whenever i see something interesting in the market and access to the private discord the link for that is in the description below we also have a free discord with over 3 000 members so be sure to join that and we're also on instagram as well so hit us up at jakenomics with a follow on ig so make that thumbs up turn blue and subscribe if you're new it really does help the channel grow and now without further ado let's get into the video so for anyone who has no idea what a warrant is you can think of it kind of like a long-term call option that allows investors to buy common shares at a fixed price until a specified future expiry date warrants trade at a price that is lower than the common share price and so an investor has to put up less capital upfront to own the warrant if we take a look at some of the warrants that i currently own we got cloud md we got the planet we got my shroom plays numinous and mind med hylion spore and then we have my spec warren's ipob thcb and vgac now these are my current warren holdings keep in mind that i have bought and sold warrants in the recent past such as apxt lg vw and n-back for example and have sold a part or most of these worn positions for profit to get my initial back like ipob and the planet for example now i want you to just pay attention to the numbers here and what is possible when you trade warrants and how crazy it can get if you get in early to the right companies 174 176 245 642 481 my only red warrant position currently is highly on at minus 31 percent but if you've been following me on this journey then you know that i was once up 200 percent on these warrants but made the mistake of not selling the hype now to clarify i am long on highly on but it was quite silly of me not to sell when i was up ten thousand dollars on a run that was based purely on hype at the time lesson learned but yeah i just kind of wanted to show you guys what is achievable playing warrants in companies you believe in and understand or simply the spac route which you know i can get into in another video if you guys want it's a great warrants are a great way to leverage your capital for exponential gains so whenever companies i am bullish on offer warrants for example well then this is the route i choose to take now why are these gains so explosive well warrants are usually a lot more sensitive to price action for example if the common share were to rise five percent well then the warrant would likely move up more if you are bullish on a company and think their share price will significantly increase then loading up on warrants could be a great play on the flip side warrants do carry more risk if the share price were to decrease by five percent then the warrant is going to drop more than that most stock warrants provide the holder the right but not the obligation to buy common shares at the predetermined exercise price now selling your warrants as you do with options is another option for warrant holders one thing to note here is that you should do your own due diligence and research each company's warrant terms before buying these warrants this is because though there are expiry dates for the warrants some companies choose to force the warrant holder to exercise prior to maturity date if certain conditions are met this is with specs so make sure that you know what these conditions are if any now what do i mean by exercise price well it's the amount that you would need to pay to turn those warrants into shares prior to expiration now let's compare two different warrants i hold here let's take cloud md and the planet so as you can see here cloud md's warrants have a strike price of one dollar and an expiry date of june 2nd 2022 the planet warrants i own on the other hand have a strike price of 3.75 cents and an expiry date of december 4th 2021. i first started buying cloud warrants at 25 cents and have been adding on the dips so my current average is 53 cents same with the planet i started buying these at around 40 cents and added on the way up so my average now is around 60 cents but to understand the gains here these two are fairly different okay and here's why so cloud warrants right the stock is trading at two dollars and 45 cents as of friday and the warrants around a dollar and 45 cents the exercise price is one dollar meaning that this is the spread give or take a few cents that will follow both so if for example cloud stock goes up 20 cents to 2.65 cents while the warrens will also go up around 20 cents to 1.65 cents but the percentage change here is what it's important right so the percentage change from 1.45 cents to 1.65 is much greater than the percentage change from 245 to 265 so your gains as well as potential losses are greater now this is even more true for planet the exercise price here is 3.75 so because the spread is larger the percentage change will also be larger so these warrants are around uh three dollars and fifty cents right now and the stock is at seven dollars and thirty five cents so let's say hypothetically that planet stock doubles to 14.70 in 2021 right so we take 1470 minus minus our 735 right that gives us 735. so that would be 100 gain for the stock but now watch what happens if we apply this to the warrants so currently 3.50 3.50 cents for the warrant plus 7.35 cents and so that would equal to and 80 cents now that's a massive gain of 208 percent over the same time span and this is even more prevalent when you get warrants super cheap for this let's take a look at my numinous wellness warrants i bought these at 19 cents all right and the exercise price for these ones is 35 cents and the expiry date is september 10 2022. so i do own 600 new me shares but i also own these 3 000 nui warrants so let's say you added shares at around 50 cents which i did and warrants at 19 cents like i did and let's just see the difference in returns here so the stock went from around 50 cents to a dollar and 81 cents now obviously this is a fantastic gain of 262 percent right everyone's gonna be happy with that but look at what the warrants have brought me in the same time span so we got 19 cent warrants and now the warrants are trading around 1.41 so this is good enough for a 642 percent gain so this is a seven and a half x instead of a three and a half x quite the stark difference right now i hope this better helped you understand kind of like how warrants actually work and just to visualize how explosive the war the the returns could be if you get in early to the right companies warrants also have the risk of the company stock never getting high enough for them to be in the money which in simple terms means that if you were to redeem your warrants you would have actually paid more for the warrants plus the specified share price than the current share price so in simple terms warrants allow you to essentially put like a down payment on your stock and you can then pay the the remainder at a later date if you want but if you decide the stock isn't for you or if you're just happy with your gains or you know it's just like not looking like it's worth paying the second payment for example well then you could just cut your losses and run or take profits and be happy right so there's lots of different things lots of different routes that you can take okay so that's great and all but how do we actually buy warrants well let me show you it's actually very simple and it's done in the same way as you buy stock now if i take you inside my account here let's say i want to buy planet warrants today i would do a limit buy and set my limit to whatever price that i want to pay when the market is open you guys will see a bid and an ask the bid is what people are offering to pay for that warrant and the ask is what people are asking for in order to sell you their warrants this will obviously vary throughout the day what you need to do is set a limit for whatever price that you are willing to pay it's obviously got to be realistic otherwise it will not go through so if i'm okay with the current price of 350 then i type that in in my limit here let's say i want this as a day order which basically just means that this order will fill we'll need to fill today during the day otherwise the order will be canceled so if we go ahead and we click that and there we go we're all set and i just submitted my order and hopefully i would get this filled now you can also modify your order at any time just going to your order over here so pretty simple right so we know what the terms are we understand the leverage the explosive possible gains and how we buy warrants great but now how do we actually go about redeeming them or exercising our warrants this will be through your broker you will need to message them to ask them to do it for you the process will take a few weeks to materialize so keep in mind if you choose to redeem your warrants for shares the price of the stock could theoretically drop during that wait period in terms of what you pay while in cloud's case it would cost me one dollar plus whatever i had paid for my warrants in the first place in order to receive the one share of cloud so for me if i were to exercise all nine thousand warrants and shares it would cost me nine thousand dollars on top of my current book value which is around 4 800 i can also sell all of my warrants or a part of my warrants prior to the expiry date and lock in those profits this is really up to you and you must come up with your own strategy right but if we take a look back at these warrants at the cloud warrants i would have paid a dollar and fifty three cents for those nine thousand warrants right and right now the stock is trading at two dollars and forty five cents so right there if i did this today i would be making a decent amount right a decent amount of profit now the good thing is that i still have you know a year and a half before these warrants expire so if if cloud goes up to like five dollars a share i am laughing so i also want to mention that google is your friend here or whatever search engine that you use duckduckgo or or whatnot now if i want to know cloudmd's warrant information for example you just type that into your search engine and you can also find lots of info on the sec and fintel websites also one website i use often to find warrants is canadianwarrants.com there you can find all different warrants including the ones found on the nasdaq and nyse so it's a really great tool to use all right guys so that wraps it up for today's episode i hope you enjoyed the video and that it gave you a good insight into how warrants work and the possibilities attached to them let me know in the comments below i always like hearing from you guys and guys if this video brought you some value then please smash that like button for me as it really does help the channel a lot and if you want more content like this then don't forget to subscribe and turn on that notification bell to be notified when any new video comes out and of course check out the patreon if you want access to all of the perks like the private discord and access to all of my stocks watch list and plays in a timely fashion and much much more and please feel free to join the free smart money squad discord server and until next time take care and invest smart