Stock warrants are similar to options because they give an investor the option to purchase a share of stock at a given price at some point in the future. The true difference between a warrant and an option is the issuer. An option is issued by the market exchange; a warrant is issued by the company offering the stock.
Why Offer Warrants?
Companies offer warrants on their shares when they want to boost investor confidence. They are predicting the value of their stock will go up; if it does, then investors will have greater confidence in the stock in the future. For this reason, warrants are often issued at the same time a company issues a new stock.
Why Buy Warrants?
As an investor, you have the opportunity to earn a very high return on investment with warrants. Warrants are high risk, high reward certificates that are transferable and sellable. This makes them very flexible, and they can be attractive to investors. They are popular with hedge funds and strategists as well.
How do you exercise a stock warrant?
A stock warrant is always issued with an exercise date and price. American warrants can be exercised any time before the exercise date at the exercise price. With European warrants, you can only exercise the warrant on the exact exercise date. When you exercise a warrant, you can notify your broker or the issuing company with either your put or call order. Warrants are issued directly by companies. As a result, when you exercise the document, the company will be the one that issues you the shares directly.