CAFEW.PK -- Extremely Undervalued

[Tirebldr]

Tirebldr -- look at the initial post -- CAFEW is a warrant on CAFE which gives you the right to buy CAFE at 5.5.  The warrant expires July 21, 2007.

Being fairly new to lots of this, I"m searching the web and trying to understant these "warrants". What they are, etc. Is there a good website URL which can help me understand warrants. And why they are a good investment in this case. IF you have time, I'd sure appreciate your helping me understand this.

[VikingFan]

Here's an extensive description of warrants:
http://www.investopedia.com/articles/04/021704.asp

There's lots there that's not relevant to CAFEW.  Basically CAFEW is a call warrant, like a call option, which gives you the option to buy CAFE at 5.50.  That option expires July 21, 2007.  Also, unlike many warrants, these ones are publicly traded.

Normally a 5.50 warrant with 2 years+ remaining would have a much larger premium than the current .27 (5.50+4.17 CAFEW=9.67, vs. 9.40 for CAFE) when the underlying stock has been so volatile.  That's what makes CAFEW a particularly good investment.  However, they were a much better investment when they were at 1.72 yesterday than they are at $4.17 today -- if CAFE pulls back significantly, CAFEW will, too.  If you think CAFE is going higher, CAFEW is a cheap way to participate in the upside and limit the downside risk.  CAFEW will go up dollar for dollar with CAFE, but will pull back less if CAFE sells off because of the current cheap premium.

One caveat on these and any publicly traded warrants is they aren't as liquid as the stock.  Today, with volume over 2 million, liquidity wasn't a problem, but in slower times it will mean wider spreads and more reaction to large orders.

Hope that helps...

[tommyt]

VikingFan,
Thanks for the great info, I had the idea that they were similar to options and I tried to ask a question last night and blew my opprotunity to get in this morning. I think the message was lost somewhere because it's nowhere to be found. Regardless, I was wondering what happens if you hold the warrants to expiration? Do they just gradually price in to fair value of CAFE shares?
Thanks again.

[Tirebldr]

Yes! Very much so. Thank you very much - taking the time to send the link, and the valuable explaination.

[VikingFan]

If you hold the warrants until expiration on July 21, 2007, you'll need to exercise them by sending 5.50 with each to the company to get an equal number of CAFE shares.  Alternatively, you can sell them up to the last day.  The last few days before expiration, CAFEW should trade at CAFE minus 5.50 almost exactly, as there won't be any time premium left.

[REALDEALS21]

Trade is over ??

[VikingFan]

No -- I sold some premarket and early well over 4, and bought them back in the lower 3's.  I'll continue to accumulate some CAFEW on weakness and sell into strength.  They have a huge upside potential, so I'd like to hold some for a while.

[VikingFan]

Picked up some more in the high 2's this morning, and it's already up over 20% from there.  Hope some others joined me...

[VikingFan]

Sold some over 4 on the rally, but still holding most.  Still has huge upside potential...

[VikingFan]

Sold some more at 5, but still holding a big position.  If CAFE can break and hold 10+, it's going much higher.  Anyone else join me?

[REALDEALS21]

^ I AM IN TOO ! 

[VikingFan]

Great!  A nice 60% or so already today.  I've been selling into strength and buying weakness, but holding a large position from the low 2's.  Very tempting to sell it all after such a big gain, but I've now more than taken out my cost basis and riding the rest for free.  CAFEW could be a huge winner still from here...

[VikingFan]

FYI, I just sold out of most of my CAFEW at 9.3-9.5, though still holding about 15% of my original position for longer term (with a stop).  Moved some of the proceeds over to ORCT after their earnings and on the drop under 26.

CAFEW has been awesome...

[starfire]

viking, if I may ask, how did u come across CAFE? r u screening?

[David Randolph]

Awesome pick ! Congrats, how did I lose this one? 

Got to work harder overnight ...