There’s a little known secret on Wall Street. It’s an open secret, but professional investors like to keep it quiet. In fact, investors like Warren Buffett and Carl Icahn have used this secret “code” to make billions of dollars many times over the years.
If you’re a long-time reader, you know I’m talking about warrants.
And if you’re a new reader, today I’m going to show you exactly how billionaire investors use warrants to help juice their returns. And how you can play the same game.
Battle of the Heavyweights
Vicki Hollub had a problem. In April 2019, the CEO of oil major Occidental Petroleum (OXY) was on the hunt to make a major move. The problem was fellow oil giant Chevron beat her to it. Or so they thought.
Enter Warren Buffett. Not wanting to back down from making a major acquisition, Hollub struck a deal with Buffett to invest in Occidental. The deal gave Hollub a lifeline to outbid Chevron for Anadarko Petroleum for $37 billion.
But Buffett knew he had the upper hand. He knew he could get sweetheart terms for his new stake in OXY. It was the same playbook he used to make billions with Bank of America and Goldman Sachs in the wake of the 2008 financial crisis.
Don’t let Buffett’s folksy attitude fool you. He’s a shark, and when he smells blood in the water, he attacks. That was the case with banks in 2008 and it was the case with Occidental in 2019.
With Occidental, Buffett’s Berkshire Hathaway invested $10 billion. He received perpetual preferred shares with an 8% annual dividend. All this means is that Buffett gets an 8% dividend per year from the company no matter what.
The real kicker, though, is something Buffett’s done time and time again. He demanded OXY give him warrants as part of the deal.
If you’re not familiar with warrants, you’re not alone. Probably 95% of investors don’t know what they are.
A stock warrant is a security that gives the holder the right (but not the obligation) to buy a share of stock at a fixed price. That sounds a lot like options, but they’re far better.
They usually expire anywhere from three to five years instead of months. Many of them trade on public markets. And you can buy and sell them just as easy as a stock. No special permission from your broker needed.
The advantage to speculating with warrants is the leverage you get to a rising stock price.
Buffett knows this all too well. Take Bank of America as an example. He invested $5 billion into Bank of America when it needed a cash infusion. As part of that deal, he got 700 million warrants to buy the stock at a later date for $7.14 per share.
In 2017, he exercised those warrants with the stock trading at about $24 per share. Which means the $5 billion he paid for the warrants was worth more than three times what he paid for them. It was an instant gain of billions of dollars for Buffett.
Getting back to OXY, Hollub was all too happy to agree.
Buffett got 80 million warrants to purchase shares of OXY for $62.50 per share at any time until 2030.
At the time, shares were trading around $60. But that’s not the end of the story.
Beating Buffett at His Own Game
Not long after, the great oil market crash of 2020 threw the entire sector into chaos. The massive drop in the price of oil in March of that year caused havoc on nearly every oil company in the world. Occidental was no exception.
It forced the company to all but suspend its quarterly dividend. The dividend went from quarterly payments of $0.79 per share to $0.01 per share.
That wasn’t good enough for billionaire activist investor Carl Icahn.
Icahn started building a stake in OXY right after Anadarko’s deal with Buffett. He was highly critical of it calling it “one of the worst disasters in financial history.” He also criticized the financing from Buffett as expensive saying “Buffett figuratively took her to the cleaners.”
In the process, Icahn became the company’s third largest shareholder. And won a battle to oust four of the company’s directors. He replaced two with his deputies.
Once installed, the new board did something interesting. In July 2020, they issued a “special” dividend to shareholders. But it wasn’t a cash dividend. It was a warrant.
For each share they owned, shareholders received 0.125 warrants. Each whole warrant carried a seven year term with an exercise price of $22 per share.
This was Carl Icahn’s revenge and a slap in the face to Buffett. The common shareholders had better terms than the Oracle of Omaha by a mile.
Even better, those warrants traded freely for anyone to buy and sell. I even recommended them to readers of a previous service in October 2020.
And what happened next was predictable. At least for those in the know.
As the oil market recovered, so did stocks of oil companies like Occidental.
Over the next couple of years, shares traded 557% higher.
But the warrants fared far better, with my readers cashing out with a 1,333% gain.
Who didn’t receive those warrants? Warren Buffet. Because the company only gave the warrants to common shareholders. Remember, Buffett owns preferred shares and a far different warrant.
It also meant that Carl Icahn got the last laugh.
Carl Icahn has the last laugh. Source: thestreet.com
Icahn made out with over $1 billion in profit on the trade. All because he got the company to issue warrants.
Not Just for the Elite
The good news is, it isn’t just billionaires benefitting from trading warrants. Readers of Strategic Trader know this all too well. Over the past seven years, I’ve recommended more than 90 different warrants to subscribers.
In fact, we’re already profiting from the most recent price action in the oil market Including a 300% gain from our January 2026 recommendation of Valaris warrants in just two weeks.
And our most recent oil and gas play from last month’s issue is currently up 159% as I write.
Just as I said last week, the oil market can mint fortunes if you’re right…or wipe you out if you’re wrong. Finding a different way to play these markets – especially during volatile periods like we’re seeing now – is key to long-term success.
That’s what both Buffett and Icahn understand. And that’s why they often turn to warrants to help them get there no matter what sector of the market they’re playing.
Regards,
Editor, Strategic Trader
P.S. Since I launched Strategic Trader a little over seven years ago, we’ve cashed out with 10x or more gains more than half a dozen times. Not to mention dozens of triple-digit gains.
In fact, our average gain on every trade we’ve closed out so far is more than 150%. And that doesn’t include only our winners. That includes winners and losers.
So if you’re looking to take your trading – and your portfolio – to the next level, there’s no better place to look than trading warrants.
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