I took a deep dive into SPAC warrants to understand how they can help investors magnify the returns of SPAC investments. They can indeed boost your returns - but there's lots of risk involved! We're taking a look to figure out how to navigate SPAC warrant investing.

00:00 - Intro
0:40 - SPAC Warrants Explained
2:57 - Valuing SPAC Warrants
3:49 - SPAC Warrants Pros & Cons
4:00 - SPAC Warrant Pros
6:46 - SPAC Warrant Cons
12:59 - My Thoughts on SPAC Warrants

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#SPACWarrants are risky, but when used properly, can massively increase the returns on a SPAC stock.

SPAC warrants are a contract that gives the owner the right to buy additional stock from the company in the future. In this way, it's kind of like a call option - you pay a small amount of money for the contract, which you can exercise later for full shares.

Interestingly, SPAC warrants are sold with SPAC units during the SPACs IPO. They initially trade with these units, until they're separated 52 days later. Then, you can trade SPAC warrants just like you would any other stock.

As we know, #SPACs stocks can be redeemed by investors prior to a business merger, meaning that investors can return their shares to the SPAC sponsors and get back their initial investment. This is why SPACs typically trade around $10 until they complete a business acquisition - that $10 is still held safely by the SPAC.

SPAC warrants, though, aren't backed by this. If the SPAC fails to find a target for acquisition, shareholders get their money back - but warrant holders get nothing! This makes them particularly risky, as they have the potential to become worthless.

In most cases, SPAC warrants give the owner the ability to buy the underlying stock at $11.50. So, if you think the SPAC stock will ever trade above $11.50, SPAC warrants are a great thing to own! By buying a SPAC warrant, you can pay a lower price to get your hands on the stock in the future and lock in the purchase price of $11.50 (when it could have a higher market value down the road).

With SPAC warrants, you can magnify the returns of stocks by investing with less capital but while gaining exposure to the same amount of shares. SPAC warrants typically have a baseline cost of the cost of the SPAC - $11.50, since they guarantee the right to buy the shares at that price. This means you can pick up SPAC warrants really cheap in the beginning, wait for the SPAC stock to produce returns, and enjoy even greater returns with SPAC warrants thanks to their intrinsic value.

SPAC warrant pros include:
• Reduced cost of investing
• Magnify the returns of SPAC stocks
• Generous expiration date of 5 years after merger completion

But SPACs have a ton of risks, too! These include:
• Lower accessibility
• Lower trading volume
• Fees associated with exercising warrants
• Risk of losing all value
• Risk of post-merger price drop
• They dilute shares when redeemed
• SPACs can force you to exercise your shares early

You especially have to watch out for this last one, because being forced to exercise your shares can really throw a wrench in your strategy - and if you fail to exercise by the deadline, your investment will become worthless.

SPAC warrants are a powerful strategy for enhancing SPAC returns, but you need to do so carefully. It's important to perform plenty of research to identify the unique rules and redemption conditions of each and every SPAC warrant. These things can change how much your warrants are worth and how many you'll need if you plan on exercising them in the future.

Personally, I plan on investing in SPAC warrants by targeting SPACs that have announced acquisition targets. This gives me more confidence that the SPAC merger will go through, and my warrants won't become worthless. By getting in as early as possible, I can also hope to beat any price action the SPAC stock sees leading up to the merger, driving up the price of my warrant even faster.

Are you investing in SPAC warrants? Tell me about your SPAC warrant investing strategy in the comments!

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DISCLAIMER: NOT FINANCIAL ADVICE.
The content in this video should not be used as the basis for any investment decision, as it is for entertainment purposes only. Additionally, some of the links contained in this description are affiliate links. I may earn a commission via Amazon, WeBull, M1 Finance or Robinhood should you choose to purchase or sign up at the links provided.

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