CXApp Warrants EXP 140328 (NASDAQ: CXAIW) are, for those brave of heart, moving to about the level where they become in the money. Or, perhaps to be more accurate, the underlying stock is moving to where those warrants are about to be in the money. This is when the warrants are at their greatest leverage - they'll move more per movement of the underlying in this price range than any other. Simply because this is when the interaction of the CXApp stock price and the warrant exercise price combine to produce an objective valuation for the warrant.
It's possibly worth explaining this in a little more detail. As we said about CXApp back here it's a recent IPO via a SPAC arrangement. There's a soft but reasonable cap to the price the underlying stock is likely to reach because of the existence of the stock conversion. The warrants are a usual part of the structure of such deals. They allow the purchase of more of the common stock - they're an option, a call option - at a previously fixed price. Here that number is $11.50. So, as the underlying stock approaches $11.50 in price then those warrants start to have an intrinsic value. Not just the time value that the price might rise above that sometime before the expiry date (14/03/2028) but they will be “in the money” now as the phrase goe
CXAppwarrnt stock price from NASDAQ
We want the number in the top right hand corner to see what's happening today.
We're suspicious of the CXApp stock price itself as any sustained rise over $12 leads to the Class B being convertible to Class A common stock and thus available to the market. But leave that aside.
When CXApp is - say - $9 and below then the warrants are well out of the money. Their value is simply that time value that at some point in the next 5 years CXApp common stock might go over $11.50. Similarly, if CXApp were at $25 then the warrants would be well in the money. That time value would be well swamped by that inherent value. It's when the underlying, the common stock, price is around and about the warrant exercise price that the warrants are highly volatile. Exactly what we're seeing right now. Further, as long as the common is around the exercise price then we'll see the volatility in the warrants continue.
The driver of the volatility will be changing opinions as to the next price move in the common stock - but with that leveraged reaction. A fun place to gamble perhaps but we'd not suggest that it could be called investment.
