rukawa Posted April 20, 2013 Share Posted April 20, 2013 I think the velocity of leverage for Citi is wrong. It should be about a factor of ten lower to account for the fact that you one receive one tenth of a share instead of a full share. Link to comment Share on other sites More sharing options...
racemize Posted April 20, 2013 Author Share Posted April 20, 2013 I think the velocity of leverage for Citi is wrong. It should be about a factor of ten lower to account for the fact that you one receive one tenth of a share instead of a full share. you are right--I adjusted the formula. I'm still thinking about whether it is right. Link to comment Share on other sites More sharing options...
Guest hellsten Posted October 4, 2013 Share Posted October 4, 2013 Thanks racemize for creating the spreadsheet and Eric for sharing all the information on warrant and option strategies! Reverse engineering the spreadsheet while thinking about what has been discussed in the other thread helped me understand Eric's strategies, including cost of leverage, better. Link to comment Share on other sites More sharing options...
siddharth18 Posted October 4, 2013 Share Posted October 4, 2013 Wow, excellent work here! Thanks for posting! Link to comment Share on other sites More sharing options...
racemize Posted October 4, 2013 Author Share Posted October 4, 2013 Thanks racemize for creating the spreadsheet and Eric for sharing all the information on warrant and option strategies! Reverse engineering the spreadsheet while thinking about what has been discussed in the other thread helped me understand Eric's strategies, including cost of leverage, better. I was actually going to go ahead and bump this thread earlier, but you did it for me! And you were nice at the same time! It appears that a lot of people have found it useful, besides myself. I'm not sure I've ever opened the document without someone else in it. FYI, on the reverse engineering aspects, I'm happy to answer any questions. I've also put comments in the heading to let everyone know what each column is for. I also completely made up the "velocity of leverage"--I would think there is some normal term/calculation people use for this, but haven't run into it. If there is, please let me know! Link to comment Share on other sites More sharing options...
xtreeq Posted October 5, 2013 Share Posted October 5, 2013 Thanks racemize, the spreadsheet is a great. Link to comment Share on other sites More sharing options...
racemize Posted October 14, 2013 Author Share Posted October 14, 2013 I've added BAC 16s below the warrants (above the 15s and 14s). Link to comment Share on other sites More sharing options...
racemize Posted December 10, 2013 Author Share Posted December 10, 2013 Hi All, after Eric pounded some sense into me and made me re-work dividend adjustments, I updated the spreadsheet. Essentially, I was not adjusting for dividends correctly so the "cost of leverage" without dividends was correct, but the modified version with the dividends was not. I just finished updating everything to correct for that issue. For most of the stocks, the adjustment was not that big of a deal, as the stock and strike price were relatively close. There are a few however, that are affected quite a bit more. E.g., if you consider the impact of a dividend on GM-B warrants for example, it is quite large. Link to comment Share on other sites More sharing options...
LC Posted December 10, 2013 Share Posted December 10, 2013 Thanks for sharing this :) Link to comment Share on other sites More sharing options...
stahleyp Posted December 11, 2013 Share Posted December 11, 2013 Hey race, The FFBCW's strike is now $12.12 from the filings. Just a heads up! Link to comment Share on other sites More sharing options...
racemize Posted December 12, 2013 Author Share Posted December 12, 2013 Hey race, The FFBCW's strike is now $12.12 from the filings. Just a heads up! You mean the strike has been adjusted from 12.90 -> 12.12? Which filings are you talking about? Do you know if there has been a shares per warrant adjustment? I'll update once we confirm what the changes should be. Link to comment Share on other sites More sharing options...
stahleyp Posted December 12, 2013 Share Posted December 12, 2013 Yep, from $12.90 to $12.12. Still 1:1 for share and warrant. http://www.sec.gov/Archives/edgar/data/708955/000070895513000078/q3-10qx2013930.htm "Warrants to purchase 465,117 shares of the Company's common stock were outstanding as of September 30, 2013 and 2012. These warrants, each representing the right to purchase one share of common stock, no par value per share, have an exercise price of $12.12 and expire on December 23, 2018." Link to comment Share on other sites More sharing options...
racemize Posted December 12, 2013 Author Share Posted December 12, 2013 got it, and updated! Thanks! Link to comment Share on other sites More sharing options...
racemize Posted December 12, 2013 Author Share Posted December 12, 2013 After even more discussions with Eric, the dividend adjustment has been updated to include the time value of the lost dividends. This had almost zero impact on most of the current warrants on the spreadsheet, but will have some effects later in the warrants' life. Link to comment Share on other sites More sharing options...
rayfinkle Posted January 5, 2014 Share Posted January 5, 2014 Thanks racemize this is great Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 17, 2014 Share Posted January 17, 2014 Hey race, What is the difference between the "common stock appreciation (w/div)" and "total return (w/div)" columns? I saw the explanation on the spreadsheet but am a bit confused. Also, what is the most precise way to account for dividends in calculating cost of leverage? I see you are accounting for time value, which I also thought about doing, but am not sure what discount rate to use. I'm trying to replicate you numbers for AIG manually so I can learn, but am not sure how to include the dividends. Without dividends I just did ($45/(51.50-19.83))^(1/7) - 1 and got exactly the 5.14% that you got. Thanks Link to comment Share on other sites More sharing options...
dpetrescu Posted January 17, 2014 Share Posted January 17, 2014 Maybe I'm missing something but it shouldn't matter what the current dividend rate is when considering purchase of a warrant. The market price of the warrant takes into account the dividends and time. So it assumes the holder of the warrant knows they are missing out on the dividend reinvested at the risk free rate for the life of the warrant. Otherwise someone could arbitrage this. If the underlying has a 10% dividend yield the warrant market price is already marked down to take this into account. All that matters when considering a purchase (for the subject of dividends) is if the dividend will increase or decrease from the moment the warrant is purchased. Link to comment Share on other sites More sharing options...
racemize Posted January 17, 2014 Author Share Posted January 17, 2014 Hey race, What is the difference between the "common stock appreciation (w/div)" and "total return (w/div)" columns? I saw the explanation on the spreadsheet but am a bit confused. Also, what is the most precise way to account for dividends in calculating cost of leverage? I see you are accounting for time value, which I also thought about doing, but am not sure what discount rate to use. I'm trying to replicate you numbers for AIG manually so I can learn, but am not sure how to include the dividends. Without dividends I just did ($45/(51.50-19.83))^(1/7) - 1 and got exactly the 5.14% that you got. Thanks The common stock appreciation tells you how much the common has to appreciate in order for the total return of the warrant to match the total return of the common (which includes dividends reinvested). The total return just shows you what total return you are matching. While the total return column is a more realistic number for the cost of leverage, I find the common appreciation to be easier to think about. The time value of the dividends is included in the same way as discussed in the boston thread. essentially the strike price is assumed to compound by the missed dividend rate. It isn't a huge difference from the dividends coming in all at the end, which is much easier to calculate. Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 17, 2014 Share Posted January 17, 2014 Hey race, What is the difference between the "common stock appreciation (w/div)" and "total return (w/div)" columns? I saw the explanation on the spreadsheet but am a bit confused. Also, what is the most precise way to account for dividends in calculating cost of leverage? I see you are accounting for time value, which I also thought about doing, but am not sure what discount rate to use. I'm trying to replicate you numbers for AIG manually so I can learn, but am not sure how to include the dividends. Without dividends I just did ($45/(51.50-19.83))^(1/7) - 1 and got exactly the 5.14% that you got. Thanks The common stock appreciation tells you how much the common has to appreciate in order for the total return of the warrant to match the total return of the common (which includes dividends reinvested). The total return just shows you what total return you are matching. While the total return column is a more realistic number for the cost of leverage, I find the common appreciation to be easier to think about. The time value of the dividends is included in the same way as discussed in the boston thread. essentially the strike price is assumed to compound by the missed dividend rate. It isn't a huge difference from the dividends coming in all at the end, which is much easier to calculate. Thanks. I think I need to play around with numbers to make sense of it, as I still don't appreciate the difference. Btw, what is the boston thread? Also, I think your spreadsheet has an error in a formula. Several columns are not showing. Link to comment Share on other sites More sharing options...
racemize Posted January 17, 2014 Author Share Posted January 17, 2014 Hey race, What is the difference between the "common stock appreciation (w/div)" and "total return (w/div)" columns? I saw the explanation on the spreadsheet but am a bit confused. Also, what is the most precise way to account for dividends in calculating cost of leverage? I see you are accounting for time value, which I also thought about doing, but am not sure what discount rate to use. I'm trying to replicate you numbers for AIG manually so I can learn, but am not sure how to include the dividends. Without dividends I just did ($45/(51.50-19.83))^(1/7) - 1 and got exactly the 5.14% that you got. Thanks The common stock appreciation tells you how much the common has to appreciate in order for the total return of the warrant to match the total return of the common (which includes dividends reinvested). The total return just shows you what total return you are matching. While the total return column is a more realistic number for the cost of leverage, I find the common appreciation to be easier to think about. The time value of the dividends is included in the same way as discussed in the boston thread. essentially the strike price is assumed to compound by the missed dividend rate. It isn't a huge difference from the dividends coming in all at the end, which is much easier to calculate. Thanks. I think I need to play around with numbers to make sense of it, as I still don't appreciate the difference. Btw, what is the boston thread? Also, I think your spreadsheet has an error in a formula. Several columns are not showing. It is the thread called Monish Pabrai Boston presentation or something of that nature. Google screws up the data pull about ever third time, so just wait for the next pull and it will fix itself. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 12, 2014 Share Posted February 12, 2014 I love this sheet. Thanks again! Link to comment Share on other sites More sharing options...
orthopa Posted January 13, 2015 Share Posted January 13, 2015 Thanks to those who put this together, very useful resource. Link to comment Share on other sites More sharing options...
racemize Posted June 17, 2015 Author Share Posted June 17, 2015 just a friendly reminder that this spreadsheet exists, for those that aren't aware. Also, please let me know if there are updates that need to be made (e.g., I've not kept track of all of the individual adjustments to some of the warrants). https://docs.google.com/spreadsheets/d/1NUVie3jKSM64ow9td9-cU-GBFkf5atgeOoTT1aiLtOo/edit?usp=sharing Link to comment Share on other sites More sharing options...
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