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Gold warrants making millionaires

  1. 1,533 Posts.
    >Gold warrants making millionaires

    By: Byron Kennedy

    Posted: 2002/04/30 Tue 14:00 ZE2 | © Miningweb 1997-2002

    Traders have been filling their boots with gold call warrants and are raking in obscene profits as a consequence of bullion's surge beyond $310 per ounce. Over the past month gold warrants have dominated the warrant board with five of the top eight most liquid instruments all listed over South Africa's major gold producers. Despite gold touching a two-year high of $312 yesterday, demand for call warrants over Anglogold, Gold Fields and Harmony remains brisk.
    One trader in particular who will be grinning all the way to his bank manager bought R10,000 worth of Gold Fields warrants and sold them for R140,000 just six months later. Had he invested the cash in the underlying Gold Fields counter instead, he would have made a profit of "just" R23,000. Professional traders, too, are cashing in with a leading warrant issuer reporting that "at least five or six traders have made a million rand trading our gold call warrants."

    Even foreign investors have been on the mark having bought R25m worth of warrants over the past year, the majority of which was ploughed into gold call warrants. By far the most popular instrument among offshore investors is the company-listed Harmony warrant, commanding almost 60% of the trade in warrants with an overseas counter-party.

    As a consequence of gold stocks moving aggressively higher since the beginning of this year, many of the listed gold warrants have become almost obsolete in that their strike prices are unrealistic compared with current share levels.

    Anglogold warrants
    Tradingweb's pick of the Anglogold call warrants is Deutsche Bank's 5ANGDB. It is out-the-money and has an effective gearing not quite as extreme as Standard Bank's 4ANGSB. In terms of volatility the Deutsche Bank option is also marginally cheaper as is the case with its Anglogold put, 6ANGDB, preferred over 5ANGSB.

    Gold Fields warrants
    There's little to choose between 3GFIIB and 3GFISB, both Gold Fields calls issued by Investec and Standard Bank respectively. 3GFISB gets the nod because of its marginally more attractive gearing ratio of close to 3. If it's a Gold Fields put you're after look no further than the Investec duo of 4GFIIB and 5GFIIB, although it is the former that offers better leverage.

    Harmony warrants
    Investec's 2HARIB is the only Harmony call that is out-the-money and has attractive effective gearing at close on 3.5x. For more conservative types 2HARSB will appeal especially with its cheaper "vols" compared with 2HARIB. Standard Bank's 4HARSB is the clear-cut choice of the Harmony puts.

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