Nevada Copper Corp NEVDQ

Warrant pricing with Black Scholes option pricing model etc

[westcoast1000]

The Black Scholes option pricing formula can be applied to warrants, but it is misleading in some ways for a stock like NCU.  See below:

Black-Scholes Value:	0.045
Stock Price: (in USD)		(ex. 31.55)
Exercise Price: (in USD)		(ex. 22.75)
Time to maturity: (in years)		(ex. 3.5)
Annual risk-free interest rate		(ex. 5%)
Annualized volatility		(ex. 50%)

This is my quick attempt to price the  A series warrants that expire in July 2022. Note I did this yesterday and had the current share price at .23 . Aside from the relevant prices, the two important variables are the risk free discount rate (which arguably is like the price of Canada or US t-bills or bonds) and the volatility of the stock.

But the key here for NCU is not volatility, but rather upside potential. I cannot envision a scenario, other than an earthquake that destroys the mine or a black swan underground, in which the price of these shares falls from, say, .23 for very long. In fact the voatility is all to the upside, that is, potential gains, not just variation. If the potential gains are subjectively recognized by the  buyer,  it is very easy to justify a much higher price for the warrants. I hold a large bag of A warrants and the common shares.

[Notgnu]

In my case I plan to hold the warrants until maturity. That make the math quite simple because I am not worried about fluctuations during that time period. It is true that to value them for taxes, or for the purpose of a re-sellable asset, you may need to account for a discounted price (as fish mentions) but if they are in the money at mturity the math is very basic... eg) my math :)) N

[betteryear]

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[Notgnu]

Yup... I added about 700,000 first series warrants today... too cheap IMO N.

[Fishbillion]

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[westcoast1000]

Not, You must be getting close to to owning .5 of one percent of the whole freaking copper mine. That is mulitmillionaire territory. 

[Notgnu]

Not quite, but close at about 0.4 percent on a fully diluted basis percent. 4.5 m shares and about 4.7 m warrants All caution has been thrown to the wind. :) N

[lumpy13]

Sorry, posted my previous comment and hadn't seen this posting. Wow!  Especially leverage with the warrants.  

[westcoast1000]

Hi betteryear, I think you need the time in years, not months. Also, who knows what the volatility will be?  But like you, I think the share price will go up and the price of the warrants (now all in the money) will march up in step. BTW, one of the oddball posters on here said there would be an "overhang" on the share price as the warrants get closer to being priced in the