compoundvalue Posted October 20, 2020 Share Posted October 20, 2020 On warrant pricing I think people (myself included) tend to underestimate value of long dated options. A lot of things can happen in almost 7 years. Some potential scenarios may entail a share price that would be much higher than $32 (again 7 years time horizon). As for all the warrant unfriendly and outright dumb things mgmt. and board can do in the interim, Icahn with significant skin in the game (including the warrant) and 3 board members isn't the worst partner one can have for this kind of journey, nevertheless it's definitely a risk that has to be taken into account Link to comment Share on other sites More sharing options...
RadMan24 Posted October 20, 2020 Share Posted October 20, 2020 On warrant pricing I think people (myself included) tend to underestimate value of long dated options. A lot of things can happen in almost 7 years. Some potential scenarios may entail a share price that would be much higher than $32 (again 7 years time horizon). As for all the warrant unfriendly and outright dumb things mgmt. and board can do in the interim, Icahn with significant skin in the game (including the warrant) and 3 board members isn't the worst partner one can have for this kind of journey, nevertheless it's definitely a risk that has to be taken into account Take $32, which is a 3x gain on the stock. Warrant is $3 and at $32 stock, the warrant has a $10 value. Not much difference in gain. Link to comment Share on other sites More sharing options...
mwtorock Posted October 20, 2020 Share Posted October 20, 2020 To me, OXY-WT gets better risk reward than OXY stock by reducing the capital loss of a total loss scenario. With high debt and low oil prices, many oil related companies have gone under. The probability to fail for OXY was around 50% in some research reports. Link to comment Share on other sites More sharing options...
compoundvalue Posted October 20, 2020 Share Posted October 20, 2020 On warrant pricing I think people (myself included) tend to underestimate value of long dated options. A lot of things can happen in almost 7 years. Some potential scenarios may entail a share price that would be much higher than $32 (again 7 years time horizon). As for all the warrant unfriendly and outright dumb things mgmt. and board can do in the interim, Icahn with significant skin in the game (including the warrant) and 3 board members isn't the worst partner one can have for this kind of journey, nevertheless it's definitely a risk that has to be taken into account Take $32, which is a 3x gain on the stock. Warrant is $3 and at $32 stock, the warrant has a $10 value. Not much difference in gain. I know, that's the reason I used it as break even point as mentioned before by aryadhana Link to comment Share on other sites More sharing options...
lnofeisone Posted October 20, 2020 Share Posted October 20, 2020 On warrant pricing I think people (myself included) tend to underestimate value of long dated options. A lot of things can happen in almost 7 years. Some potential scenarios may entail a share price that would be much higher than $32 (again 7 years time horizon). As for all the warrant unfriendly and outright dumb things mgmt. and board can do in the interim, Icahn with significant skin in the game (including the warrant) and 3 board members isn't the worst partner one can have for this kind of journey, nevertheless it's definitely a risk that has to be taken into account Take $32, which is a 3x gain on the stock. Warrant is $3 and at $32 stock, the warrant has a $10 value. Not much difference in gain. $32 is a funny number. If one is bullish OXY, these warrants only make sense if you think OXY stock will go over $32. For example, @$50 return on the stock is $40, and return on warrants is ~$75 (assuming same initial investment). This is an interesting idea as OXY is in a hated space and even if it does start to deleverage it will probably trade very similar to KMI which has been in deleveraging for some time now. I suspect the stock will either stay flat or rebound a tad and trade in a range. Interestingly, OXY has 2023 22 calls that are trading and those are trading at a premium to this warrant. Might make sense to defray the cost of the warrant by selling 2023 22 calls. Link to comment Share on other sites More sharing options...
aryadhana Posted October 20, 2020 Share Posted October 20, 2020 That's true. My gut feeling is that the risk-reward on the warrants somehow still doesn't work out. By that I mean levering yourself into the stock seems better than the warrant. For the numbers you suggested, that would entail something like 2x leverage right now. The latter would be a great trade even if OXY traded up to just $20 over the next year and remained confusingly volatile thereafter. It would be a great trade even if there's an acquisition that wipes out much of the warrant's option value. A relatively large margin call would likely mean warrant value is also down a lot, and much of the risk can be mitigated with a few OTM puts. Link to comment Share on other sites More sharing options...
aryadhana Posted October 20, 2020 Share Posted October 20, 2020 Interestingly, OXY has 2023 22 calls that are trading and those are trading at a premium to this warrant. Might make sense to defray the cost of the warrant by selling 2023 22 calls. The bid/ask I see on the Jan 23 22C is 1.49/1.88 which is below the warrant price of about 2.94. Link to comment Share on other sites More sharing options...
lnofeisone Posted October 20, 2020 Share Posted October 20, 2020 Interestingly, OXY has 2023 22 calls that are trading and those are trading at a premium to this warrant. Might make sense to defray the cost of the warrant by selling 2023 22 calls. The bid/ask I see on the Jan 23 22C is 1.49/1.88 which is below the warrant price of about 2.94. At premium here was meant that 1.49/1.88 (say you get $1.65) is richly priced for a 2 year out option when 7 years out trades at 2.94. Link to comment Share on other sites More sharing options...
cashisking Posted October 21, 2020 Share Posted October 21, 2020 That's true. My gut feeling is that the risk-reward on the warrants somehow still doesn't work out. By that I mean levering yourself into the stock seems better than the warrant. For the numbers you suggested, that would entail something like 2x leverage right now. The latter would be a great trade even if OXY traded up to just $20 over the next year and remained confusingly volatile thereafter. It would be a great trade even if there's an acquisition that wipes out much of the warrant's option value. A relatively large margin call would likely mean warrant value is also down a lot, and much of the risk can be mitigated with a few OTM puts. Thank you for the perspective. Interestingly, OXY common has higher margin requirement (75% for me) than OXY-w (50%). This alone makes it less capital efficient to execute with margin I think. Also the warrant comes with its own put (cant lose more than the warrant), and the loan portion is quite cheap at ~180 bps borrowing cost per year (and is "fixed" in the sense that its paid up front).. In terms of getting to $22 - reversion to even 1x book (average close to 2x over last 10 years) would take the shares to 14. One of many possible scenarios, but at that point I would expect the time value to be much higher - reflecting higher probability of being in the money.. So lets say the stock is now at 14 and there is 5.5 years left - the warrants might cost closer to 500bps - at $6.8 ((1.05^5.5)-1*22). I think cash+warrant is better than margin+common. Total exposure of 2 units cash and 1 unit warrant feels right to me.. Link to comment Share on other sites More sharing options...
ValueMaven Posted October 22, 2020 Share Posted October 22, 2020 What happens to Berkshires pref assuming OXY goes chapter 11?? Stock is below $10 at this point - huge leverage. OXY bonds are trading in the 50-60 cent range. Looks like if Berk had to mark-to-market their pref, it would be down about 50% Link to comment Share on other sites More sharing options...
Jurgis Posted October 22, 2020 Share Posted October 22, 2020 What happens to Berkshires pref assuming OXY goes chapter 11?? Stock is below $10 at this point - huge leverage. OXY bonds are trading in the 50-60 cent range. Looks like if Berk had to mark-to-market their pref, it would be down about 50% OXY bonds are not trading in 50 cent range. The cheapest are 2039s or so at 67 cent range+. The prices on OXY bonds were way lower earlier in the year when I bought (and since sold). Not picking on you, just a note to myself, since I thought maybe I could buy again. ::) Link to comment Share on other sites More sharing options...
960v Posted December 10, 2020 Share Posted December 10, 2020 The bull ride continues. Let’s hope we don’t have another crash to ten. United Airlines jumped on the DAC bandwagon today. There may be a growth story built into this value stock. Let’s see how it works out. It would be the ultimate comeback story if they can get rid of the preferred, and DAC actually takes off and they are a leader in the field. https://www.reuters.com/article/united-arlns-climate-occidental-idUSKBN28K1NE Link to comment Share on other sites More sharing options...
influx Posted December 15, 2020 Share Posted December 15, 2020 The bull ride continues. Let’s hope we don’t have another crash to ten. United Airlines jumped on the DAC bandwagon today. There may be a growth story built into this value stock. Let’s see how it works out. It would be the ultimate comeback story if they can get rid of the preferred, and DAC actually takes off and they are a leader in the field. https://www.reuters.com/article/united-arlns-climate-occidental-idUSKBN28K1NE Where do you see the growth I am curious? I don't see any growth unless oil price recovers. But I did trade this two times with commons and options. Probably a better scenario is a slow but steady recovery to ensure they can get a steady fcf if possible. It was a good thing to see that they can still refinance, even though the interest is higher going forward. Probably not many options available. Wrong time to refinance. Link to comment Share on other sites More sharing options...
960v Posted December 29, 2020 Share Posted December 29, 2020 Where do you see the growth I am curious? I don't see any growth unless oil price recovers. But I did trade this two times with commons and options. Probably a better scenario is a slow but steady recovery to ensure they can get a steady fcf if possible. It was a good thing to see that they can still refinance, even though the interest is higher going forward. Probably not many options available. Wrong time to refinance. The Direct Air Capture tech is what is interesting, and OXY has its first foot planted. If they can scale the tech successfully with their venture partners and start selling carbon credits and develop a renewable carbon fuel, it gets really interesting. With all the focus on global warming and DAC being one of the few economic alternatives, there is a growth thesis. I picked OXY up as a value investment, but after researching OXY Low Carbon, I now see a nascent growth play baked in. However, I wouldn't go into OXY just because of that, but hey, it's good to have DAC on board if it works out. https://www.oxylowcarbon.com/ https://www.1pointfive.com/ Link to comment Share on other sites More sharing options...
960v Posted January 20, 2021 Share Posted January 20, 2021 The FT beating the DAC drum for OXY a bit. ;D Occidental claims green push ‘does more than Tesla’ https://www.ft.com/content/eb8236e0-abfc-4d82-b6ff-540d36c501e9 Link to comment Share on other sites More sharing options...
RadMan24 Posted January 20, 2021 Share Posted January 20, 2021 The FT beating the DAC drum for OXY a bit. ;D Occidental claims green push ‘does more than Tesla’ https://www.ft.com/content/eb8236e0-abfc-4d82-b6ff-540d36c501e9 It's a misleading headline, more click bait given the market love of Tesla. OXY was saying DAC has the potential to eliminate Co2 equivalent to 4m cars on the road, more than what Tesla does today. Anti-fossil fuel folks say DAC will never work and its too expensive and not an appropriate solution. It's nice to see hydrocarbon companies refute that argument and take the risk, because if it works, there's plenty of money to be had down the line. Link to comment Share on other sites More sharing options...
960v Posted January 27, 2021 Share Posted January 27, 2021 Et tu Musk? I am sure some environmentalists are cringing at this, given that it is coming from the leader of EV. Let us see how it works out. "Elon Musk to offer $100 million prize for 'best' carbon capture tech." https://www.nbcnews.com/science/environment/elon-musk-offer-100-million-prize-best-carbon-capture-tech-rcna234 Link to comment Share on other sites More sharing options...
Jurgis Posted January 27, 2021 Share Posted January 27, 2021 Et tu Musk? I am sure some environmentalists are cringing at this, given that it is coming from the leader of EV. Let us see how it works out. "Elon Musk to offer $100 million prize for 'best' carbon capture tech." https://www.nbcnews.com/science/environment/elon-musk-offer-100-million-prize-best-carbon-capture-tech-rcna234 Why would environmentalists cringe at this? Link to comment Share on other sites More sharing options...
960v Posted January 27, 2021 Share Posted January 27, 2021 A good summary of the argument starts at 7:01. By doing DAC, some argue that "perverse incentives" are created for oil companies. Not sure if I buy it, but the argument is repeated consistently on forums and in the media. NBC News Summary - "Bill Gates-Backed Carbon Capture Plant Does The Work Of 40 Million Trees" On a hilarious note; one of the youtube comments is "Who else came here after Elon Musk said he will give 100$ million for this tech?" With 62 likes. Link to comment Share on other sites More sharing options...
960v Posted February 5, 2021 Share Posted February 5, 2021 OXY Low Carbon Ventures sells the first “carbon neutral” barrels. https://www.worldoil.com/news/2021/2/1/oxy-teams-with-macquarie-to-deliver-world-s-first-carbon-neutral-oil-from-permian-basin-to-india Link to comment Share on other sites More sharing options...
Alex.N.B Posted May 28, 2021 Share Posted May 28, 2021 anyone have any views on the OXY warrants at current levels (trading at ~11/warrant)... $22 strike ... vs. stock price at ~$26... in a scenario where OXY stock is meaningfully higher say 2 to 3 years from now ... around $50... - why buy the stock instead of the warrants right now if one has a positive view on the stock over the next ~2 to 3 years? Link to comment Share on other sites More sharing options...
Anglozurich Posted May 28, 2021 Share Posted May 28, 2021 (edited) Why would I buy OXY warrants when i can buy IPCO equity for 4x FCF and they will debt free by 2022. Edited June 1, 2021 by Anglozurich Link to comment Share on other sites More sharing options...
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