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.