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DraftKings Warrant Holders Hit The Jackpot After Confusing Changes To Expiration Date

DraftKings Warrant Holders Hit The Jackpot After Confusing Changes To Expiration Date

On Wednesday morning’s Benzinga PreMarket Prep show, co-host Dennis Dick discussed a strange situation that is unfolding with Draftkings Inc (NASDAQ: DKNG) warrants.

Stock warrants are similar to stock options. The key difference is that warrants represent the right — but not the obligation — to buy or sell shares of stock at a given price on or before an expiration date. Warrants are also typically issued by a company itself rather than a third party.

The particular warrants in question trade under the ticker "DKNGW." These warrants were trading higher by about 39% Wednesday morning.

“These DraftKings warrants, DKNGW, were giving holders the rights to buy DraftKings. If you pay $11.50, you get one share of DraftKings,” Dick said.

Typically, these warrants trade about $11.50 below the share price of DraftKings stock given the strike price of the warrants.

Yet Dick said he bought some of these DKNGW warrants last Thursday once their price started deviating significantly from the price of the underlying DraftKings stock.

Expiration Date Moved For DraftKings Warrants 

Dick then saw on Benzinga Pro that the warrants were set to expire the following day on June 26, 2020. 

The expiration date of the warrants had been bumped up from their original date — news that had been made public back in May.

“It says clearly in the press release that if you hold these past 5 p.m. [on June 26], they will not be exercisable and their value will just be the face value of them, which is 1 cent,” Dick said.

Dick sold his warrants on the expiration date prior to 5 p.m.

On Tuesday, Dick said he noticed the ticker "DKNGW" was still trading, even though its expiration date had passed. Trading was halted later Tuesday evening.

“Here you have something trading and closing at $14.50 that has only a 1-cent value. So this is a head-scratcher to a certain extent for a lot of people,” Dick said.

DraftKings Traders Bailed Out

Multiple traders reached out to Dick on Twitter after he tweeted about the situation, telling him they were holding DKNGW warrants and asking what they should do. He advised them to call their brokers, adding that the warrants never should have been trading this week at all.

On Wednesday morning, DraftKings issued a press release stating the expiration dates of the DKNGW warrants have been extended until 5 p.m. July 2.

"The company has decided to extend the public warrant exercise period through Thursday, July 2 to allow holders of public warrants additional time to exercise their warrants," a DraftKings spokesman told Benzinga in an email. 

The extended deadline is likely the result of the exchanges not realizing the initial expiration date had been bumped up, Dick said. 

“So the company is now bailing out everybody who bought in the last couple of days, and obviously the people who bought yesterday are going to be making some money.”  

While the DKNGW warrant holders are breathing a sigh of relief Wednesday, Dick said this case should serve as a cautionary tale for retail investors looking to trade warrants.

“Warrants are sophisticated investments and you have to pay attention because things like this happen,” he said.

While in-the-money options are automatically exercised on their expiration dates, warrants holding value essentially expire worthless if holders don’t contact their broker to exercise them prior to expiration.

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