I (Chris Reilly) just hosted our Everything Warrants Q&A with RiskHedge's director of warrants, John Pangere. It was a hit, and the live demo was a big reason why.

John opened his regular Fidelity brokerage account, searched for Hertz Global Holdings (HTZ), pulled up its warrant, and placed a limit order to buy 10 warrants at 89 cents.

Total cost: $8.90. That was it.

To be clear, Hertz was just a demonstration of the mechanics. It's not a recommendation.

But he might as well have been buying a regular stock. If you know how to buy a stock, you can handle the mechanics of buying a warrant.

I knew the demo would be simple. But I'm glad everyone got to see it, because it clears up the biggest roadblock for investors. A lot of people assume warrants are as complicated as options. They aren't.

That 89-cent price tag matters, too. A warrant typically costs less than a share of the underlying stock. That means you put less capital up front. And because the starting price is so low, a rise in the stock can mean a much bigger percentage gain in the warrant. (Warrants are speculative, and as you'll see below, they can fall hard, too.)

But you need to know what to look for...

• John estimates there are roughly 400 to 500 companies with publicly traded warrants at any given time.

He uses a Bloomberg terminal (which costs $2,600+ a month) to find and screen them. But if there's a stock you already like, you can type its ticker into Yahoo Finance or a similar site and check whether it has one.

The warrant's ticker usually ends in a W or two. Sometimes as a WS. For example, the Hertz warrant ticker is HTZWW.

Then he runs a warrant through his strict checklist, which he calls T-U-V: Time, Underlying business, and Volume. If you read Monday's Jolt, you know a little about it.

First, time. Most of the warrants he likes have three to five years until expiration. That gives the company room to grow.

Then the business itself. With a junior mining company, for example, he wants to know the project is viable and has a plausible path to attracting a larger buyer.

Finally, volume. Some warrants barely trade. John told me that earlier in his career, he sometimes waited months just to get filled on one. Then came the question of whether he'd be able to sell it.

He now pays close attention to trading volume and the spread between the bid and ask prices. He also uses limit orders. With a thinly traded warrant, a market order can leave you paying far more than you expected. Sometimes John splits the difference between the bid and ask to get a better price.

• You have to be ready for the swings...

John shared an example of a warrant (Blink Charging) that fell more than 80% before eventually turning into a 29X gain in around 20 months.

Read that again. An investor had to sit through a loss of nearly everything on paper before seeing that kind of return.

And plenty of warrants never make that comeback. But over time, he’s shown that his winners more than make up for any potential losses.

John has had trades that moved quickly, too. One recent position gained roughly 300% in a little over two weeks after the company received a buyout offer. Other positions have taken years to play out.

He also keeps his exposure in check. John told me he personally likes to keep warrants to around 5% of his overall portfolio. If that slice went to zero, he could live with the loss. A big winner, on the other hand, could grow into a much larger position.

And he sometimes uses a Free Ride, which longtime RiskHedge readers are very familiar with. When a warrant is up 100% or more, he may recommend selling enough to get the original investment back and letting the rest ride.

• Here’s my biggest takeaway from the event...

John has some extraordinary winners to point to, including the 29X trade and a Purple Innovation (PRPL) warrant that generated a 50X gain.

But if you're thinking about getting involved with warrants yourself, start with three questions: What's the company behind the warrant? How much time is left before expiration? And is there enough trading volume to get out when you want to?

• One other thing stuck with me after the Q&A.

There's so much artificial intelligence (AI) coming into investing. You can use it to research companies, sort through data, and get answers to just about any question. I'm all for using those tools.

But when you're looking at a speculative investment that can drop 80% or 90%, I still want to be able to ask a real person a question. Placing the order takes seconds. Deciding whether or not to place it is where a person helps.

AI can help you research a warrant. But it’s never waited months to get filled on one or sized a position so that losing it wouldn't hurt. John has. And he shares all of his research and recommendations in his premium warrants advisory, Strategic Trader... the only service of its kind that we know of.

He's very active in his subscriber-only Slack channel, so if you have a question, you can ask it, and he’ll get back to you quickly. He also hosts live quarterly Q&As, where you can hear how he's thinking about a company and ask your own questions.

Chris Reilly 

Executive Editor, RiskHedge