A Primer on Stock Warrants – Why Stock Warrants Are Issued and What They Represent


If you understand the purchase options and how they work, you are well on your way to understanding a warrant. They share many of the same characteristics, at least at the definition level. Similar to a purchase option, the warrants have an exercise price and an expiration date, but unlike a purchase option, neither the exercise price nor the expiry date are standardized.

These conditions are set out in company filings with the SEC and can usually be viewed through a Bloomberg terminal or by speaking to your broker (who can then search for it on a Bloomberg terminal). .

The warrants may be either exchange-traded or issued as part of a private placement transaction. If they are listed on the stock market, they will be traded on the stock exchange, just like the shares. Warrants are traded in shares such as shares and not contracts such as call options.

Money orders are generally issued with an expiry date of between three and five years from the date of initial issuance. There may also be a period of time immediately after the issue in which the Warrants can not be exercised. For example, a warrant may be issued with the following description: "This warrant may be exercised for a period of three years from six months from the date of issue."

Warrants can be issued for a variety of reasons:

  • Warrants can be issued when a business becomes public, so vouchers begin to trade at the same time as the IPO
  • Warrants may be issued after a company is public to raise additional capital
  • A court may order the issuance of warrants in a settlement or court decision, and
  • Warrants may be granted during a takeover or a split

An unusual feature of a mandate, unlike a registered option, is that the terms of the mandate may be changed by the issuing corporation. This is not a normal practice, but it can happen and it happens, but in most cases the change of conditions is beneficial to the mandate holder. The purpose of the company issuing the warrants is to have them exercise, which will provide additional capital. For this reason, a change in terms, if any, is normally either an extension of the period of exercise of the warrants or a reduction of the exercise price of the warrants.

The warrants may be used by an investor as an investment vehicle, just like an ordinary share. They may also be used to hedge another related position or as an element of arbitrage in a position involving either ordinary shares or options on ordinary shares. A warrant can be a valuable financial tool and offers an additional opportunity to invest or trade the issuer of the warrant.

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