• November 2019
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Warrant

A type of derivative not commonly traded in the U.S. It is a dilutive security issued by a company as opposed to a third-party. A warrant grants the holder the right (but not the obligation) to buy or sell the instrument at a specified price (the strike or exercise price) by a certain date. They are primarily used in order to hedge against downside or as leverage.

Warrants that grant the holder the right to purchase a security are call warrants; these stand in contrast to warrants that grant the holder the right to sell a security, which are called put warrants. Unlike options, warrants tend to feature long periods of time between dates of issue and expiration. Unlike common stocks, warrants do not entitle the holder to voting rights and unlike stocks generally, warrants do not entitle the holder to dividends.

EXAMPLE:

Investor One: “Man, if we worked in Germany or Hong Kong, we could trade warrants all the time.”

Investor Two: “That’s what you wish out of a life abroad?”

Investor One: “That and interesting food, I guess.”

Investor Two: “You really need to start dating again.”

Investor One: (Sighs.) “Yeah… I know.”