Senior Analyst, Freeport Strategic Opportunities
All billionaire investor Ed Thorp wanted was to be a math professor…
After earning a PhD from UCLA, he moved to MIT to start his academic career.
Then his life took an unusual twist.
Thorp was working on modern applications of probability theory. One of the most practical ways to develop his theories was to investigate ways to win at blackjack.
So, by day Thorp was a math professor. But by night, he hit the blackjack tables.
With the help of an IBM mainframe computer, he developed a card counting system to improve his odds of winning.
To test it out, he convinced a bookie and professional gambler called Manny Kimmel to stake him $10,000.
They visited casinos in Reno, Lake Tahoe, and Las Vegas together. And over a weekend, Thorp won $11,000 – more than his $6,900 annual salary teaching math.
In 1962, he wrote a New York Times bestselling book about it, Beat the Dealer. It became the first book to prove mathematically that blackjack could be beaten through card counting.
And that wasn’t the only twist in Thorp’s career.
After his success at blackjack, he turned his mind to how to beat the stock market.
He was looking for inefficiencies he could exploit to put the odds on his side, like he had at blackjack.
He zeroed in on a type of speculation most regular investors had never heard of – stock warrants.
I’m no math genius, like Thorp. But I’ve been trading warrants at our elite Freeport Strategic Opportunities advisory for years. And I’ve used them to give my subscribers the chance to close out gains as high as 470%… 614%… 2,174%… 2,805%… and even 4,942%.
More recently, subscribers who acted on my recommendations are up 300% and 310% on just two warrants issued by AI companies.
So, today, I’ll show you what warrants are… what makes them unique… and how they can help you profit from AI and other booming sectors of the market.
Sweetening the Pot
For those of you that don’t know, warrants are a sort of option. A warrant gives you the right to buy stock of a company at a set price – called the strike price – over a specific period. If the stock goes over that price within that time, you can buy the shares at the discounted strike price.
The biggest difference is that warrants aren’t issued by an options exchange, like the CBOE. They’re issued directly by the company, usually to incentivize investors to put up money the company wants or needs.
For example, in 2011 Bank of America was in some trouble. It needed some quick cash to keep its head above water. In came the Oracle of Omaha, Warren Buffett.
Buffett struck a deal where he invested $5 billion to buy preferred stock in Bank of America. But he insisted on a kicker: warrants.
Buffett got 700 million warrants that allowed him to buy shares of the company at $7.14 per share at any time over a 10-year period.
In August of 2017 with the banking sector recovered and the stock trading at about $25 per share, Buffett exercised his warrants. Meaning he bought 700 million shares for $7.14 per share.
That helped him turn a $5 billion investment into more than $20 billion.
But warrants aren’t limited to struggling companies. They can come from a company looking to raise growth capital. Or just as a way to reward patient shareholders.
The great news is, you don’t need to be Warren Buffett to get warrants. In fact, you don’t even need to put up tens or even hundreds of thousands of dollars to invest in a company just to access its warrants.
That’s because in many cases, you can buy and sell warrants through your brokerage account. No special options account needed. They trade just like stocks. And they can help you make a leveraged bet on a company if you think it’s stock is heading higher.
Let me give you a simplified example to show you what I mean…
Imagine a warrant that gives you the right to buy one share of a company’s stock for $50 anytime in the next three years. But right now, the stock is only trading at $25 per share. And its warrants are trading for $2 each.
It doesn’t make sense to exercise the warrants for $50 per share when you can buy the stock for $25 per share. But it might be worth a small speculative bet to buy the warrants since they’re only trading for $2.
You think the company that issued these warrants will do well. So, you buy some, hoping the stock will go up and the warrants will follow.
Now, let’s say you’re right, and the company’s stock price goes to $70.
If you’d bought the stock at $25 and sold at $70, that’s a profit of $45. Or a nice 180% gain (45 / 25 x 100 = 180 ).
But let’s say the warrant is now worth $20 ($70 – $50 = $20). So, if you sell it at $20, that’s a 900% gain on your original $2 purchase price. Or five times the return of the stock.
In other words, warrants give you leverage over stock price moves. And Thorpe used that leverage to his advantage.
How to Turn Thousands into Millions
In 1972, Thorp bought the warrants of resort and casino developer Mary Carter Paint Company.
At the time, the stock traded for $8. But the warrants traded for 27 cents. Thorp bought 10,800 of them for $3,200.
At one point, the stock dropped to $1.50. The warrants dropped with it, heading almost to zero. But Thorp didn’t sell. Instead, he let his system play out and bought even more warrants.
Then, in 1978, Mary Carter Paint opened the first casino outside Nevada. Its stock and its warrants surged. And Thorp cashed out, making over $1 million on the trade.
That’s a staggering 31,150% gain.
At Freeport Strategic Opportunities we haven’t made a gain that high – yet. But we’ve had some outstanding wins that demonstrate the power of this little-known trading tool.
Take Purple Innovations, the company behind the Purple Mattress.
I recommended its warrants to my subscribers when they traded for 19 cents. By the time I alerted subscribers to cash out, those same warrants were trading for $9.59.
That’s a 4,942% return in just 20 months. That compares to the return of the stock over the same period of 385%.
Or take our warrants trade on Blink Charging. It makes electric vehicle charging stations.
I recommended its warrants when they traded at $1. By the time I told subscribers to sell, they traded at just over $29.
It was a 2,805% gain in 21 months compared to just a 685% return on the stock.
And it wasn’t an easy trade. At one point, the warrants were down over 80%. Not unlike Thorp’s trade in Mary Carter Paint.
And those are just two examples of the power of warrants. In Freeport Strategic Opportunities, we’ve had more than two dozen trades with triple-digit gains. Five of those with gains higher than 1,000%.
And as I mentioned up top, we’ve had some success lately with warrants plays on AI stocks.
Triple-Digit Gains on the AI Boom
One of those AI companies provides AI systems for the U.S. military – including software the U.S. Navy uses for unmanned service vessels. It also helps companies use AI to eliminate bottlenecks in supply chains.
We’re up 300% so far on its warrants while the stock is only up 69%.
And we’re up 310% on warrants of a company using AI to improve diagnosis and treatment of burn victims.
That’s another advantage of warrants. They’re not limited to one sector of the market. You can use them to profit from any of the big trends you follow in your regular stock portfolio.
Of course, not every warrants trade will be a winner. But when your big winners are in the thousands of percent, you can afford to take some losses on your losing trades.
You just need to make sure you have plenty of discipline, patience, and a solid risk management strategy.
If you have that, they’re a great way to add to your wealth in the more speculative part of your portfolio.
If you’re new to warrants, I know this is a lot to take in. So, next year, we’ll be featuring more on them here at Freeport Navigator.
I’ll show you how to pick them… how to manage your risk to keep your downside low… and how to use them to profit from AI and the other big trends we track here at The Freeport Society.
Until then…