Glossary
Warrant
A security issued by a company that gives the holder the right to buy its shares at a fixed price before a set date, creating new shares if exercised.
A warrant gives its holder the right, but not the obligation, to buy a company's stock at a set exercise price until an expiration date. It looks like a long-dated call option, with one key difference: warrants are issued by the company itself, and when they are exercised the company creates new shares and receives the cash. Companies attach warrants to bonds, preferred stock or SPAC units as a sweetener that lowers their financing cost.
How it works
A warrant's terms are set in a warrant agreement: the exercise price, the number of shares per warrant, the expiry (often five years or more) and any right the company has to force early exercise or redemption if the stock rises enough. Many warrants trade on exchanges under their own symbols, often with a "W" or ".WS" suffix.
Warrants versus listed options
- Issuer. Warrants come from the company; listed options are created by other investors and cleared by the Options Clearing Corporation.
- Dilution. Exercising a warrant adds shares and dilutes existing holders; exercising an option transfers shares that already exist.
- Term. Warrants often last years; most listed options expire within months.
Warrants can also lose value suddenly when a company calls them for redemption, a common feature in SPAC warrants once the stock trades above a threshold for a set number of days. Before buying one, read the redemption and adjustment terms in the warrant agreement.