AIG investors are no doubt pleased after a big 2012, and an especially nice run since the...


AIG investors are no doubt pleased after a big 2012, and an especially nice run since the Treasury exited a month ago. A popular play for many AIG bulls, however, are the TARP warrants - struck at $45 and expiring in 2021. Generally rising and falling with the stock, the warrants have remained stuck in neutral of late.
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Comments (6)
  • JWagner
    , contributor
    Comments (12) | Send Message
     
    the valuation on these is increadibly dependant on your assumption of dividend - but even assuming 0% payout and all capital being returned via stock buyback - the vol is 37% - way way too high. The reason that these are not moving is that they are overvalued...
    4 Jan 2013, 10:40 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11169) | Send Message
     
    No one can accurately model options pricing for an expiration date EIGHT YEARS in the future.

     

    So, no, AIG TARP warrants are anything but "overpriced".
    4 Jan 2013, 01:39 PM Reply Like
  • raclay
    , contributor
    Comments (10) | Send Message
     
    I respectfully disagree.
    Why would you assume a 0% payout. Assuming a 3% annual payout over the remaing 8 years of the warrants life? The exercise price would be lowered by more than 10%. These are VERY long term MARGINABLE calls on a common with improving fundamentals.

     

    There may be a large seller in the warrants at this time. There was a large buyer around when they hit 15.55 in October. This is just the nature of the market for out of the money warrants. The warrants aren't dirt cheap, nor should they be, but they offer good leverage and a much better bang for the buck for a bullish speculator.
    4 Jan 2013, 12:25 PM Reply Like
  • rob77
    , contributor
    Comments (7) | Send Message
     
    Have a little patience and great results will happen
    4 Jan 2013, 01:33 PM Reply Like
  • CapVandal
    , contributor
    Comments (798) | Send Message
     
    Yes it is impossible to model the warrants as if they are short term options.

     

    However, it isn't difficult to look at the so called 'intrinsic value' of the warrants vs the price of the stock.

     

    The only advantage of the warrants is additional leverage.

     

    There are a number of disadvantages.

     

    Make a few plausible assumptions comparing the warrants to stock bought on margin -- and look at them over reasonable prices for the stock over 9 years -- and you have your answer.

     

    Personally, I think the warrants are overpriced vis a vis the stock. But I still own some. Leverage you can live with.

     

    Compare AIG warrants to HIG warrants. HIG warrants have had a run over the last week. But they are heavily in the money.
    4 Jan 2013, 03:18 PM Reply Like
  • Destin
    , contributor
    Comments (718) | Send Message
     
    Checking out bid prices on LEAPS can give you a decent idea. The Jan 2014 $45 calls are bid at about $1.70, while the Jan 2015 $45 calls are bid at $5.10. The warrants with 6+ years of additional time over the 2015 calls are at about $14 currently. Long the warrants and still accumulating.
    4 Jan 2013, 06:16 PM Reply Like
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