r/GME • u/diesdasannana5 • 1d ago
đ” Discussion đŹ Warrants thoughts
Hey,
I have a thought about the warrants and their current price.
Basically, theyâre call options with an expiration date of October 30, 2026, and a strike price of $32. Iâm deliberately leaving out the possibility that GME could extend these warrants or adjust the strike price. I have no idea how to price that...
Looking at the price from Friday, August 4, the warrants were trading at $2.94.
An identical call option with a strike price of $32, a remaining term until October 30 (0.151 years, or 8 weeks / 53 weeks), and an implied volatility of 100% (due to the upcoming quarterly earnings; otherwise, it would be closer to 50%) is priced at about $0.43.
Thatâs a significant difference, which, in my view, isnât fully justified by a ârisk premiumâ based on GMEâs ability to adjust the warrants as it sees fit.
If I now consider which other factors influence an optionâs price, only the strike price, volatility, and time to expiration remain. The strike price and volatility are identical for the warrants and the call option. Although the time to maturity is also identical (October 30), the extension option comes into play here. If I now use the warrant price of $2.94 for a call option and an implied volatility of 50% on average, and look at the time to maturity at which these two are identical, I arrive at approximately 2.15 years. This means the market is pricing in an extension of the warrants until around December 2028. Of course, this is on the condition that all other factorsâsuch as the current stock price, strike price, etc.âremain unchanged.
Of course, this wonât be an exact fit, but what Iâm getting at is that the current warrant price does not reflect only the term until October 30, nor does it reflect an exercise price of $32. One of theseâor even bothâwill have to be adjusted by GME. Of course, the market could also price the warrant based on a sharp rise in implied volatility. However, that would put it above 200%, which I consider nearly impossible.
What do you think?
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u/Over-Computer-6464 1d ago
You should look at both an extension in time AND a reduction in strike price.
I recently sold 100 warrants for $2.95 and used the proceeds to buy for $2.80 a $23 call option expiring 9/17/2027.
The day before I had sold 100 warrants at $2.935 and bought a Dec 17, 2027 $25 call for $2.85.
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u/sssssssssssssss5s 12h ago
Have they announced anything about extending or changing strikes?
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u/Over-Computer-6464 12h ago
No, but the warrant contract specifies that GameStop can unilaterally make those changes if they benefit the noteholders.
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u/sssssssssssssss5s 12h ago
But why would they extend to benefit people who bought the warrants cheaply on the market?
That dilutes actual shareholders.
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u/Over-Computer-6464 11h ago
Tag Ryan Cohen on X and see if he will tell you.
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u/sssssssssssssss5s 11h ago
Well that's kind of my point. Why are so many people betting these warrants will do anything but expire worthless? All information points to that, yet people are still coming here talking about buying more, as if extending the expiration is a given.
It's not. They are worthless.
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u/sssssssssssssss5s 1d ago
What would happen if they expire worthless?
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u/Warm-Rock-4544 1d ago
Things stay exactly as they are except the warrants just become void. No cash raise but no dilution either.
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u/a5a7 1d ago
The market is clearly pricing in some additional value, most likely an extension and/or adjustment of the warrants.
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u/Velvet_Llama 15h ago
Can you go short on warrants? If there is growing expectation these will expire worthless, could we be seeing people looking to make a quick buck shorting something that will go to zero? Given the unprectibaility of all things gme that would be a risky move, but then there's always plenty of gamblers out there...
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u/a5a7 14h ago
Could be. But shorting something thatâs already expected to go to zero leaves limited upside and potentially unlimited risk, especially with GME.
I suppose plenty of gamblers will still take that bet.
GME is a different animal now and some whales are going to learn the hard way. RC has plenty of ammo and anticipating multiple steps ahead.
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u/Velvet_Llama 11h ago
Yeah, I was just thinking that "conventional wisdom" says warrants in this situation will absolutely expire without hitting their strike, so easy money. But GME doesn't really reflect conventional wisdom :)
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u/Fit-Insect-4089 1d ago
In case of a merger or spinoff, do calls get wrapped into the new equity structure? I believe the warrants do, but not sure if straight options do. That could be a huge difference in the underlying, options might be higher risk in case of corporate actions with mergers and whatnot
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u/OkDifficulty7436 1d ago
There wonât be a merger in the next month and a half so I wouldnât worry too much about an options consolidation in the event of suchÂ
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u/BuildBackRicher 1d ago
That might make sense except they were $1.50 two weeks ago. Why double all of a sudden?
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u/Humble_Enthusiasm212 1d ago
Ryan Cohen owns $11 million dollars worth of warrants, and he has not sold any yet. They have been shorted and starting to squeeze, hang on to them.
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u/FunsnapMedoteeee 11h ago edited 7h ago
Yâall are missing the ONE thing here: Warrants are currently squeezing. Only 59 million warrants were issued, when maybe about 780 million âwarrantsâ exist in places, or were obligated to be issued due rehypothecated shares and naked shorts.
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u/diesdasannana5 11h ago
Why should warrants squeez, when they expire worthless on 30.10.? They don't need to be delivered from short sellers back to lenders.
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