Beware the Ides of March, and Bad Warrant Advice

My sister and I just sold our mom’s house. My mom is getting older, and needed more of an assisted living situation.

As part of the sale, we split up some of the “chores” around selling a home. Cleaning out the house, cancelling telephone service, and, one of my tasks, cancelling Directv, which is owned by AT&T.

My sister and I have power of attorney for my mom, to take care of selling the house, and doing things like cancelling services associated with the house.

My sister began the Directv journey, contacting customer service and asking what the process was, given that we did not have the passcode for the account (mom’s memory isn’t so great).

She was given an 800 number to call by an AT&T customer rep, and that they would give her an email address to send a copy of the power of attorney to. That’s where I stepped in.

I called the number, passed on what the AT&T employee had said about the email, and got a “what?” as a response. Not that I didn’t expect it. 

I walked through the situation, and asked what the process was I needed to follow to cancel the account. I was told I’d have to go to an AT&T store, where they would pull up the account, and then to call back the number I had just called.

OK.

So, off to my local AT&T store. There were three employees in the store, and one approached me fairly quickly and asked how she could help. 

I got about 30 seconds into the situation, and she snapped, “You need to dial 611.” I responded I had no idea what that meant, and that I did not have AT&T phone service myself. 

Her response, “You need to dial 611.” And she walked off. (Gotta say, that was one of the worst customer service experiences I had EVER had…but it gets better.)

Since I clearly wasn’t getting anywhere in the store, I called the number where I had gotten the “go to the store” answer from. I explained the situation, again, and was greeted with a complete, “I have no idea what you’re talking about.” 

Supervisor please.

A nice supervisor gets on the line, and once again I go through the story, and ask very calmly, what the process is I need to go through in order to have my mom’s Directv cancelled, since she is moving from her home.

She begins her answer with the fact that she has a mother as well, and that she loves her mother very much and would do anything for her. OK, glad to hear it. 

And then, her tone suddenly changes and she says although she understands she, “is not going to risk her job in order to help me.” Now it’s my turn for a “what?”.

I promptly hung up, called the number again, and finally reached a customer support person who listened to my situation. And, then told me exactly what the procedure was I needed to follow. I did, and service cancelled.

I don’t think any of the employees was intentionally giving me wrong information, or trying to make the process hard. And I still have no idea why an AT&T supervisor thought I was asking her to “risk her job” in order to turn off my mom’s Directv. 

But, that didn’t matter. I had asked people who “should” have known the answer to my question, and gave me the correct advice. And, after all was said and done, about 20% of the information I received was correct.  

Know your warrant guru

Over the weekend I received an email from a warrant guru pointing to an article about how to trade Virgin Galactic warrants just before the completed acquisition by Social Capital Hedosophia. 

I’m not into slamming others publicly, so I’m not going to name the guru, or who wrote the article the guru was passing on. That’s not the point.

Here is the point. Some of the information in the article was just wrong. It was written by someone who understands WHAT a warrant is, but clearly not the nuances of HOW a warrant trades. 

Now, the direction of the suggestion on the Virgin Galactic warrants was correct. They did recommend buying them, so if you had followed the article you would have made money. 

But, while they knew there was a call provision for the warrants at $18, they totally missed the impact this would have on the warrants. It’s exactly that impact, that gave us a huge edge, and return, buying warrants and shorting calls against those warrants. 

A trade I laid out in great detail to Warrant Observer members, and shared publicly as well.

This was the exact language that set me off. (Yes, while I am wrong about a LOT of things, just ask my wife and kids, I get upset when I see incorrect info on warrants being shared with people who most often barely understand warrants as it is.)

One feature is an option for the company to effectively swap an investor’s paper profit for shares of Virgin Galactic should the stock rise above $18, which doesn’t impact the valuation significantly.

Of course, the warrants could be far more if a more bullish multiple were put on the stock, which trades around 6 times 2023 forecast Ebitda. If Virgin Galactic grew into a multiple of, say, around 11 times, and the stock rose to $20, the warrants could be worth over $12. 

The author was treating the warrants as a five year warrant, and disregarding the fact that there is a VERY high likelihood the warrants will be called. And, that that would have a huge impact on the premium in the warrants. 

Bottom line, if you knew what you were doing you could have killed it on the warrants. But, if you were confused by this info, it would have negatively impacted your ability to capitalize on the trade.

OK, rant over.

Be super duper careful who you listen to regarding warrants. From what I’ve seen, there are VERY few people on the internet who are both knowledgeable and share that knowledge with their fellow traders.

You can find more of my knowledge sharing here, but don’t ask my wife if it’s correct;)

The Warrant Observer