BAC A Warrant holders

[rogermunibond]

Need some help in deciding what to do with my BAC warrants.  What are you doing?

[racemize]

If it helps, I decided to convert my JPM warrants earlier this year as I thought the valuation no longer warranted leverage.  I feel like BAC is in a similar spot now.

[longlake95]

I exercised a couple of weeks ago. B of A is no longer dirt cheap, so I figured the torque in the warrants will diminish. Also, I wanted to be all-in on the common since they jacked up the divvy by 60% - bringing my yield on cost to +4%.

 

 

[Drake]

Need some help in deciding what to do with my BAC warrants.  What are you doing?

 

To me, this is a simple decision: I have bought BAC.WS.A a couple of years ago to invest cheaply in BAC's business. The business has developed better than I hoped for, and thus I will exercise them and then stay invested the common for the long run.

 

When to exercise: From a theoretical view, late exercise is always optimal for a call if dividend effects are not a concern (which is true for BAC.WS.A due to the anti-dilution features). As the A warrants are in the money, they most certainly will stay in the money until expiry. But you get some protection from the very unlikely case that BAC drops below the exercise price if you exercise late. I will exercise late, but that's more a liquidity question than a P&L question. Regarding profits, I don't think it really matters when one exercises because I cannot see any plausible scenario in which the share price might drop below the strike.

[Tranloi]

I called Wells Fargo (Wells Trade) to see what the cost would be to exercise the warrants.

 

They told me Bank of America is offering $13.14 per share (which would be the new cost basis).

 

If the current shares are $26.78, and the warrant's exercise price is $12.807, the difference would be $13.97.

 

Does that mean I'm paying $13.97 - $13.14 = $0.83 per share to defer my taxes?  That seems really high. 

 

If the current warrant prices are $14.55 + $12.807 (exercise price) = $27.357 - $26.78 = $.577 difference.

 

Please let me know if these calculations are correct.  Thank you.

[orthopa]

Anyone changed there mind on any of this? Any new thinking. Im think of just selling late. warrants are in an IRA so there are no tax consequences. Leverage appears to be in single digits on a percentage basis looking at last couple of months.

[racemize]

I like the common still (See Viking's posts).  I'd probably convert if I were a warrant holder, although timing is tricky.  Leverage is cheap, but price volatility could go either way between now and expiry.