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Glossary
of Terms |
Break Even
Break Even Percent Increase
Exercise
The act of sending your warrant to the
company, paying the exercise price and then
receiving new common shares of the company.
Exercise price
The price the company has determined for
converting the warrants into common shares.
Expiration date
The exact date the company has determined
for the warrants to expire in the future
after which there will be no value.
Liquidity
The absence of sufficient trading volume to
execute your trades, and/or a large spread
between the bid and ask prices.
In the money
See Intrinsic value
Intrinsic value
Intrinsic Value, frequently referred to as
"in the money" is the difference between the
current price of the common stock less the
exercise price of the warrant. If say, the
common stock of a company is $10 and the
exercise price of the warrant is $8, the
warrant is actually worth $2 and is said to
have "intrinsic value" or is "in the money"
by $2.
The intrinsic value is the profit per share
realised if the the warrant is exercised and
the resulting shares sold immediately. If
the share price is less than the exercise
price then the IV is zero.
LEAPS
LEAPS which stands for Long Term Equity
Anticipation Securities is also an option as
defined above but these have a longer life
of perhaps up to 2 ½ years. Yes, this gives
you much more time but there are currently
very few LEAPS trading on the mining stocks.
Options and LEAPS are actually created or
written by investors or companies who write
an option and keep the premium (the amount
you paid) as income. The underlying company
receives nothing. For more information on
options or LEAPS, visit
www.cboe.com
Leverage
We like to define leverage as getting the
maximum return with the least amount of your
investment capital at risk.
It is the ratio of the share price to the
warrant price. A crude measure for the extra
zip in performance expected from the warrant
over the shares. Also called gearing.
Limit order
If buying: you are committing to pay no more
than a specific price per share to execute
your order.
If selling: you are requesting to receive no
less than a specific price per share/per
warrant on your trade.
ALWAYS use Limit
Order for trading warrants and the small
Canadian shares.
Long-term warrant
Our personal definition of a long-term
warrant is one that has a remaining life
until expiration of at least 2 years.
Market order
You are agreeing to pay whatever the current
market price is and if selling you are
agreeing to accept the current market. A
market order is NEVER advisable for trades
in the small Canadian shares or in the
warrants. ALWAYS use Limit Orders
Market capitalization
The market capitalization for any company is
the total shares outstanding times the price
of the common shares.
Options
A call option is a contract that gives its
owner the right, but not the obligation, to
buy a specified number of shares at a
predetermined price within a set period of
time. Most options have a life of 90 days,
180 days or perhaps up to 1 year.
For more information on options or LEAPS,
visit
www.cboe.com
Out of the money
When the price of the common share is
trading below the exercise price of the
warrant.
Potential Profit/Loss
Theoretical Value
This is basically the 'intrinsic value' (see
above) of the warrant. If the price of the
common stock is below the exercise price of
the warrant, there is no theoretical value.
Time Value is the difference between
the warrant price and the intrinsic value.
It can be described as the speculative
premium that the warrant carries resulting
from expectations of equity price increases
during the life of the warrant.
USD - United States Dollar Index
This USD Dollar Index is computed using a
trade-weighed geometric average of six
currencies - for the details click here.
Warrant
A warrant is a security (like a option)
giving the holder the right, but not the
obligation, to purchase the underlying stock
at a specific price, within a specified time
period.
Worthless
A warrant, like an call option or a LEAP,
can be totally worthless upon expiration if
the common shares are trading below the
exercise price.
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