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Old 12-02-2007, 02:20 AM
Jason Strasser (strassa2) Jason Strasser (strassa2) is offline
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Join Date: Nov 2003
Location: durham
Posts: 4,912
Default Re: Valuing warrants

warrant is just a call option... any fees associated with the fund can basically be treated as dividends, because a dividend hurts the value of a call option, the same way fees would. you have to estimate the future volatility of the stock (just estimate the one standard deviation daily move of a stock and multiply it by sqrt(252)) and plug that into one of the many option calulators on the internet. For the dividend yield just use the fee (so 2% approx) and add any other dividends the fund might collect.

The reason a dividend is bad for a call option is that the stock will decrease by the dividend but since you are not an owner of the stock you do not receive the dividend... So the stock just goes down. Understanding options is not something that can be explained to you on a forum, read option pricing and volatility.
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