Quantitative Finance Asked on January 2, 2022
Got the following notice.
What Can I do with AIG+ WARRANT I have?
What will happen on 01/12/2021?
What will happen on 01/14/2021? Will I get $45.088365 PER WARRANT ?
What will happen If I do not sell them or do nothing, will I lose money?
Br. Instruct. Cutoff Date: Tuesday, January 12, 2021 5:00 PM Security: A026665 (WTS AMERICAN INTERNATIONAL) CUSIP: 026874156 Symbol: AIGWS *** REMINDER NOTICE *** See Offer Terms Below: WARRANTS EXPIRATION DATE: 01/14/2021. CUTOFF INSTRUCTIONS: 01/12/2021. EFFECTIVE ON 12/12/19, ONE WARRANT PLUS $42.9413 WILL ENTITLE THE HOLDER TO RECEIVE 1.050 SHARES OF AIG COMMON STOCK CUSIP 026874784. AS PER THE ISSUER, THE EXERCISE PRICE TO BE CHARGED TO THE HOLDER WILL BE PER SHARE INCLUDING FRACTIONAL SHARES. IN ORDER TO FACILITATE THE ACCURATE CHARGE OF THE EXERCISE FEE, DTC HAS CALCULATED A MANUFACTURED RATE OF $45.088365 PER WARRANT. ALL OTHER TERMS REMAIN THE SAME. OPT 01: WTS EXERCISE AT PRICE $45.088365 PER WARRANT. THERE IS NO WITHDRAWAL PRIVILEGE. THERE IS NO NOTICE OF PROTECT PERIOD.
First, it helps to remember that warrants are like options... except they also slightly dilute the stock price because they cause new shares to be issued.
You have a couple of choices:
Do nothing: The second strategy is clearly bad; don't do that.
Wait and exercise strategically: Waiting and exercising the warrants if AIG stock is above the strike price of $42.9413/share is sensible. (Why not $45.088365? That is the price for 1.05 shares. $42.9413*1.05 = $45.088365.)
However, there is a big caveat to this: your notification deadline (20210112) is not when the warrants expire (20210114). You have to notify Wells Fargo two days before the warrants expire if you want to exercise them; the warrants will not be automatically exercised if AIG stock closes above the strike price on 20120114.
If AIG stock is priced near the strike price as you approach the expiry date, delta hedgers of the warrant will likely drive the stock price to be near the strike price. This pin risk has been written about in multiple articles like Avelleneda and Lipkin (2003) and can be a major frustration to deciding whether or not to exercise a warrant or convertible bond.
My personal advice from trading warrants: if the stock price is close to the strike price when you need to make your decision to exercise, look at the recent trend in AIG stock.
Selling the warrant: Selling the warrant in the secondary market would generally be suboptimal. There is no point selling the warrant after 20210112 since nobody can make decisions about exercising after that date. Before the decision date, selling the warrant could be giving up larger gains.
Answered by kurtosis on January 2, 2022
$45.088365 PER WARRANT is the Exercise Price you pay to exercise the warrants, if you decide to do so. You only exercise if it is profitable for you, i.e you receive shares worth more than this.
See more information here: http://www.aigslovakia.com/investors/warrants.html
- What is the process to exercise my warrants?
Direct registration holders should contact Wells Fargo, the warrant agent. To exercise, you will be required to complete an exercise notice and provide payment to Wells Fargo by certified check or official bank check in an amount equal to the exercise price times the number of warrants being exercised (including any fractional warrants being exercised). Upon exercise, you will receive the whole number of shares of AIG common stock that you are entitled to receive, together with cash in respect of any fractional share of AIG common stock otherwise issuable in connection with the exercise.
Holders in street name should contact their broker, bank or other intermediary for information on how to exercise warrants.
Answered by noob2 on January 2, 2022
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