Moneyzine
Contents
/Investment Guides /Stock Warrants

Stock Warrants

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 21st, 2023
Advertiser Disclosure

Definition

The term stock warrant is used to describe certificates that entitle the holder to purchase shares of common stock at a given price and within a prescribed timeframe. Stock warrants are frequently included as a feature on bonds or preferred stock issued by a company to increase investor interest and lower the cost of the bond or preferred stock.

Explanation

Companies will issue stock warrants for a number of reasons. The right to purchase shares could be included as a feature with a bond or preferred stock issue to increase investor interest. They can also be part of a preemptive right provided to existing holders of common stock, allowing them to purchase new shares when issued. Warrants can also be issued as part of a private equity deal. Finally, stock options provided to employees as part of their compensation package are actually stock warrants.

Convertible securities and call options are different than stock warrants. A call option is a stock market exchange instrument, while warrants are issued by the companies themselves. Convertible securities, such as bonds, are exchanged for common stock, while warrants provide the holder with the right to purchase shares at a given price.

The important features of stock warrants include:

  • Exercise Price: this is the price paid per share of common stock, and would typically include a premium when compared to the current market price of the company's common stock.

  • Expiration Date: the last date the holder of the warrant has the right to purchase shares at the exercise price. Unlike a call option, which expires in months; a warrant's expiration date can be ten or more years in the future.

  • Exercise Restrictions: while an American warrant can be exercised any time before the expiration date, European warrants can only be exercised on the expiration date.

Related Terms

common stock, employee stock purchase plans, stock compensation plans, stock option plans, stock grants, Section 83(b) election, common stock equivalent, contingent issuance agreement, appreciation and phantom rights, stock rights

Explore Investing Further

Related Content

  • Biden Or Trump: Who Is Better For The Economy And Stocks?
    Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
    March 19th, 2024
  • When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
    March 14th, 2024
  • DRIP Brokers: Best Brokers for Dividend Investing for November 2024
    Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
    March 12th, 2024
  • How To Invest in Real Estate Without Becoming a Landlord
    We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
    March 6th, 2024
  • Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
    ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
    February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.