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Mega Brands Inc MBLKF

Consumer Cyclical Leisure


GREY:MBLKF - Post by User

Mega Brands Inc > warrants
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Comment by kmu2013on Mar 19, 2013 11:55am
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Post# 21150249

RE: RE: RE: RE: RE: RE: RE: RE: RE: warrants

RE: RE: RE: RE: RE: RE: RE: RE: RE: warrants

Good analysis - maybe I can expand on this a bit further:

A warrant is essentially the same as a European call option, and should be priced as such.  If I price these warrants using Black-Scholes on a bloomberg terminal, i get a fair value of $0.26 - assuming historical volatilty. This is a signifcant premium to the current $0.20 they are trading at.  I've thought about why this "value discrepency" exists, but couldn't wrap my head around this.  Perhaps it is the general illiquidity of the warrants - but that shouldn't lead to a 20%+ discrepency?  Or perhaps the market believes the volatility of the stock will go down - which could be the case given the business has stabilized recently.  Still don't think it should lead to such a value gap.  Any other hypothesis on why this exists?  Does anyone know of any other warrants on the TSX that demonstrates the same mispricing?

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