1
$\begingroup$

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.
$\endgroup$
  • $\begingroup$ How come is was traded above AIG price in the beginning of 2020? $\endgroup$ – ofir Aug 2 '20 at 7:39
2
$\begingroup$

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:

  • wait and exercise the warrants if they are in-the-money;
  • do nothing and possibly let them expire despite being valuable; or,
  • sell the warrants in the secondary market.

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.

  • If the price of AIG has declined while being above the strike, I would exercise if the AIG stock price is above, at, or even slightly below the strike on 20210112. Many people will likely choose not to exercise; holders of the options will have little reason to continue delta-hedging them; and, the downward (pinning) pressure on the stock will be relieved. In that case, you may well see the stock price rise above the strike between 20210112 and 20210114.
  • If the price of a share of AIG is well below the strike price on 20210112 or has risen in price toward the strike and is close to the strike but below it, I would not choose to exercise. In that case, delta hedging may have helped push the stock price up and once that pressure is relieved, the stock price may well decline.

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.

$\endgroup$
0
$\begingroup$

$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

An excerpt:

  1. 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.

Source: http://www.aigslovakia.com/investors/warrants.html

$\endgroup$
  • $\begingroup$ If I do nothing they get expired? I better sell them If I have no intention to use them? $\endgroup$ – ofir Feb 25 '20 at 16:28
  • $\begingroup$ Yes. Currently AIG shares are worth 45.88 each. 1.05 shares is worth 48.174. So your profit would be 48.174-45.088365 dollars per warrant. Usually it is a good idea to wait, to see if the price of AIG will go up. But be sure to send your answer by 01/12/2021. Good luck. $\endgroup$ – noob2 Feb 25 '20 at 16:38
  • $\begingroup$ You can also sell them if there is a market for them. That may be the easiest way. Ask your Bank or Broker. $\endgroup$ – noob2 Feb 25 '20 at 17:02
  • $\begingroup$ The strike price is \$42.9413. \$45.088365 is the cost of exercising -- because you get 1.05 shares per warrant. $\endgroup$ – kurtosis Aug 1 '20 at 1:29

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.