Definition Warrant. Description.
A Warrant is a security that gives the owner the right,
but not the obligation, to purchase (Call Warrant) stocks at a set
price (usually higher than the market price at the time of issuance) within
a specific (long) time frame. A Perpetual Warrant has no expiration
date and lasts forever. A Put Warrant is the right to sell stocks at
a set price within a specific time frame.
Warrants are a financial instrument not unlike an
put option or
call option, but, when they are
exercised, new shares of stock are created, whereas when an option is exercised,
the owner of the option receives an existing share that is delivered by a
counterparty. However in the case of
employee stock options
likewise new shares are created and issued by the company upon exercise.
subscription rights also give a right to buy common shares, but normally
at a set price which is lower than the market price at the time of issuance,
and within a limited time frame of 2 to 4 weeks.
A Traditional Warrant is typically issued by the owner
of the underlying instrument together with a
preferred stock in order to
make buying the fixed income securities more attractive. A Naked Warrant
or Covered Warrant is however issued by banks and securities firms,
who are normally not the issuer of the underlying instrument. Both forms can
be freely transferred and are traded on exchanges.
Warrants Special Interest Group
Compare with: Bond
| Subscription Right
| Preferred Stock
| Call Option |
Put Option |
Employee Stock Options
| Treasury Stock
| Unissued Stock