Warrant


 

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Warrant

Warrants are securities issued by a company (often an investment trust) which give their owners the right to purchase shares in the company at a specific price at a future date. The warrants are tradable in their own right, and their value will go up and down as the price of the shares to which they relate goes up and down. e.g.Goodco issues new shares at 50p each. At the same time it gives shareholders warrants entitling them to buy shares at 100p at any time until 1st January 2005.Warrants have no right to dividends and no voting rights, so their value is tied entirely to the relationship between their exercise price and the share price of the company. If the share price is below the exercise price, the warrants are said to be 'out of the money' and they are worthless. If the share price rises above the exercise price, they are 'in the money' and worth something. e.g.Goodco's share price rises to 150p. The intrinsic value of the warrants is now 50p (150p less 100p)Note that one of the features of warrants is 'gearing'. This means that a small rise in the price of the share price results in a large rise in the value of the warrants, and a fall in the share price has an equally dramatic downward effect on the value of the warrant. e.g.Goodco's share price rises 33 per cent from 150p to 200p. The intrinsic value of the warrant rises from 50p to 100p (a 100 per cent rise).Note that the owner of a warrant does not have to buy the shares. He has a right, not an obligation. Note too that the value of a warrant can quite easily drop to zero (if the exercise price is higher than the share price) and that it will definitely be zero once the time for exercise has passed. So warrants are risky!



Similar Matches

Trigger warrant

Trigger warrant

A form of warrant which triggers a one-off payout in the event of an underlying asset reaching a specified level.


Covered warrant

Covered warrant

A security which gives the holder the right to acquire a share or bond at a specific price and date. Covered warrants are created by an investment bank or some other financial institution, and are not issued by the company itself.


Call warrant

Call warrant

Warrants which give their owner the right to buy an underlying instrument (e.g. a share), and which would therefore normally be used by an investor who thought the price of the underlying asset was due to rise.


Home Warranty Insurance

Home Warranty Insurance

Private insurance insuring a buyer against defects (usually in plumbing, heating, and electrical) in the home he has purchased. The period of insurance varies and both new and used homes may be insured.


Warranty Deed

Warranty Deed

A deed used in many states to convey fee title to real property. Until the wide spread use of title insurance, the warranties by the grantor were very important to the grantee. When title insurance is purchased, the warranties become less important as a practical means of recovery by the grantee for defective title.


Further Suggestions

Perpetual warrants
corridor warrant
Breach Of Warranty
Ex warrants
Limited warranty
gearing of warrant
Detachable warrant
put warrant
exotic warrant
Harmless warrant
warrant premium
warranty
Subscription warrant
corporate warrant
barrier warrant
leverage on a warrant
Yield to warrant call
plain vanilla option/warrant
Yield to warrant expiration
Central Warrants Trading Service
Warranty
Warranty
basket warrant


 
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