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If raising money were easy, everyone would do it. The irony is lots of companies with great ideas die on the vine. Often, it’s money that’s the root cause. But we have to consider other things like timing, human resources, and messaging, just to name a few. Too many times, we see a solution in looking at a problem.

Our job is to sort through companies and identify those who we believe can avoid failure.

It’s not easy. We need to be rewarded for our risks because no matter how great a company may appear on paper, it could die on the vine. The money vine.

So, we search for opportunities that could offer an asymmetrical reward versus risk. That means we believe the upside potential could be many multiples compared to the capital risk.

Unfortunately, some businesses don’t have that style of upside. Does that mean we walk away?

No. Absolutely not.

Because then companies raising money can still construct an offering that potentially benefits the business and transforms a balanced risk-reward into an asymmetric opportunity.

They can do this with a carrot of sorts.

I’m not sure why we refer to a carrot as enticing. Why not chocolate? Or whiskey?

Anyhow, I digress.

This whiskey chocolate carrot is better known as a warrant.

A warrant is the same thing as a call option. It provides the holder of the warrant the right to buy shares of a company for a set price for a set period.

Why is this good for a company?

First, it may make their shares more appealing, thus helping them raise more capital.

Second, it can act as a future capital raise already built-in from day one.

Third, there is a chance the warrants will expire worthless, and the company would have no future obligations to those warrants, providing some possible capital flexibility in the future.

Why is this good for an investor?

Leverage.

Too often hear the word leverage and think of it as a dirty word, but what if you could get additional upside potential on a stock without risking any additional capital?

That’s how leverage works here if you are awarded a warrant for no additional upfront investment. Additionally, if the stock goes down, you don’t owe anything on your warrant.

The only way to lose is to either exercise your warrant at a higher price than the stock (you should likely never do this) or exercise the warrant, hold the newly purchased stock, and then watch the stock move lower.

Investors benefit along with the company if the company is successful raising money. The company most likely needs the money to succeed and success is good for the investor as well.

Let’s look at an example:

Company A is offering shares at $1.00 each at a $10 million valuation. For every share you purchase, you also receive a warrant to buy additional shares at $2.00 each for the next three years.

If the stock stays at $1.00 for the next three years, your investment is worth the same.

If the stock drops to $0.50, you’ll be down half your investment.

If the stock rises to $2.00, your investment will be up 100%.

But here’s the kicker, if the stock rises to $3.00 in the next three years, your initial investment will be up 300%, not 200%. The stock rose by $2.00 but you also have a warrant that is worth $1.00 per share ($3.00 stock price less than $2.00 cost to exercise the warrant).

The warrant doesn’t change your downside but it does increase your upside. That’s leverage we like.

And if you exercise those warrants, the company has now raised additional capital at more than twice their first pre-money raise.

This is something we prefer to see from deals as it offers many potential benefits without significant drawbacks.

Author: RagingBull

RagingBull is the foremost trading education website where traders of all skill and experience levels can learn to trade or to become a better trader. Students can learn from experienced stock and options traders, and be alerted to the real money trades these traders make. Become a better trader with RagingBull.com's courses and programs.

One of the holy grails in trading is the ability to pick tops and bottoms. And while it does sound amazing—it’s an impossible task and a significant waste of time.

Instead, I like to follow what real-money traders are doing…since they have skin in the game.

One way to gain access to the most prominent players in the market is by using a tool like the Dollar Ace Scanner.

For example, we’ve all seen a massive runup in Roblox (RBLX) over the last week.

Has it gone up too much…too soon?

Or is there more upside in the ticker?

While no one has a crystal ball that can predict the future…I can tell you how some heavy-hitters are playing RBLX via the options market.

In fact, you may even be shocked after reading it.

Roblox Corporation (RBLX) is a global platform where millions of people gather daily to imagine, create and share experiences with in user-generated 3D worlds. The beauty of the platform is you don’t have to be a developer or tech whiz to get started. In fact, it’s kid-friendly.

The price of RBLX shares has exploded over the last two weeks after hitting a low of $60.50.

While there hasn’t been much news in the name…there has been a ton of bullish options action.

On May 10th we saw a trader come in and buy 2485 May21 $76 calls for $1.05 per contract. A $261K bet when the stock was trading at $65.09.

Last Friday there was another round of heavy call-buying. One trader came in and 4888 RBLX June 4th $95 Calls for $1.40 when the stock was trading at $83.

But that’s not all…

One prominent trader bought 2500 RBLX June $110 Calls for $1.85. That is a $463K bet that RBLX continues this run.

Is there upcoming news that we’re not aware of?

Is $100 around the corner?

This information can be helpful even if you are not an options trader. For example, you might think twice about shorting the stock if you saw the bullish call buying. Or it could give you the confidence to buy on a pullback.

One thing we know is that these contracts expire soon…we’ll know if this trader was a genius or if their big bet goes up in flames.

Author: RagingBull

RagingBull is the foremost trading education website where traders of all skill and experience levels can learn to trade or to become a better trader. Students can learn from experienced stock and options traders, and be alerted to the real money trades these traders make. Become a better trader with RagingBull.com's courses and programs.

One of the hardest things to do after a long weekend is coming to your desk on Monday morning and finding something to trade.

You can reduce that anxiety and stress by using tools like filters and scanners.

One of Kyle’s favorite scanners is Dollar Ace.

The Dollar Ace Scanner tracks large and unusual options trades from the options market. It shows us what the “big boys” on Wall Street are doing.

For example, the other day, an options player came in and bought 2155 HOG May $49 calls for $0.95. Altogether, the trade cost them $205K. At the time of the trade, HOG was trading at $48.44.

In other words, someone just bought $205K worth of OTM options set to expire on Friday. That means they would need to see a fast move for this to be a profitable trade. And if it went the other way, they would lose the entire premium by the Friday expiration.

Less than 20 minutes after, a press release hit the wires:

MILWAUKEE, May 17, 2021 /PRNewswire/ — Responding to today’s announcement by E.U. Executive Vice-President, Valdis Dombrovskis, Harley-Davidson, Inc. (“Harley-Davidson”) (NYSE: HOG) reaffirms its commitment to defend its position in Europe. The company will continue to pursue its legal challenge to the Binding Origin Information (BOI) revocation, and its application for extended reliance.

Harley-Davidson remains committed to free and fair trade and is focused on remaining globally competitive in the interests of all its stakeholders, and is committed to ensuring its customers around the world have access to its products.

Jochen Zeitz, chairman, president and CEO of Harley-Davidson:

“We are encouraged by today’s announcement that tariffs affecting our products will not escalate from 31% to 56%. This is the first step in the right direction in a dispute not of our making. Harley-Davidson employees, dealers, stakeholders and motorcycles have no place in this trade war. These tariffs provide other motorcycle manufacturers with an unfair competitive advantage in the E.U. European motorcycles only pay up to 2.4% to be imported into the U.S. We want free and fair trade. UNITED WE RIDE.”

The stock began to take off. And those call contracts more than doubled.

Did someone know the news was coming?

We sure didn’t. However, sometimes an unusual trade can act as a tell that something’s up.

Of course, that is not always the case. But we believe that there is a lot of valuable information which can be gained by following this type of options flow.

It is helpful to be on the lookout for short-dated and aggressive option trades.

Author: RagingBull

RagingBull is the foremost trading education website where traders of all skill and experience levels can learn to trade or to become a better trader. Students can learn from experienced stock and options traders, and be alerted to the real money trades these traders make. Become a better trader with RagingBull.com's courses and programs.