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Warrant
Structure and featuresComparison with call optionsTypes of WarrantsTraditionalNakedThird Party WarrantsGovernment issuedTraded warrantsPricing
Structure and featuresComparison with call optionsTypes of WarrantsTraditionalNakedThird Party WarrantsGovernment issuedTraded warrantsPricing
Structure and features
Warrants have similar characteristics to that of other equity derivatives, such as options, for instance:*Exercising: A warrant is exercised when shares are bought through the warrant.
The warrant parameters, such as exercise price, are fixed shortly after the issue of the bond. With warrants, it is important to consider the following main characteristics:
*Premium: A warrant's 'premium' represents how much extra you have to pay for your shares when buying them through the warrant as compared to buying them in the regular way.
*Gearing (leverage): A warrant's 'gearing' is the way to ascertain how much more exposure you have to the underlying shares using the warrant as compared to the exposure you would have if you buy shares through the market.
*Expiration Date: This is the date the warrant expires. If you plan on exercising the warrant you must do so before the expiration date. The more time remaining until expiry, the more time for the underlying security to appreciate, which, in turn, will increase the price of the warrant. Therefore, the expiry date is the date on which the right to exercise no longer exists.
Warrants are longer-dated options and are generally traded over-the-counter.
Sometimes the issuer will try to establish a market for the warrant and to register it with a listed exchange. In this case, the price can be obtained from a broker. But often, warrants are privately held or not registered, which makes their prices less obvious. Once the warrants are in the secondary market, they can then be traded just like a stock. Warrants can be easily tracked by adding a "w" after the company’s ticker symbol to check the warrant's price.