Stock Warrants

Stock warrants are a way for investors to purchase stocks at a specific price for a certain date within the future. Common shares can be obtained through stock warrants at a fixed price. The typical length of a stock warrant is usually 5 years or more, making it a long term type of investment. Stock warrants work slightly different than call options do. Call options base their value on shares that are all ready purchased while stock warrants can issue shares by a company in order to cover transactions. Stock warrants are also usually purchased by companies that are emerging from bankruptcy. Investors who invest in stock warrants are unable to see a return until the stock warrants surpass their price. Unlike traditional stock options, stock warrants hold a higher value than the purchased price. Stock warrants are issued by companies themselves while traditional stock options are typically traded between two different people. Investors who invest in traditional stock options will sell off their stock to another investor. Stock warrants are different because the investor is only able to sell the stock warrants back to the company that issued them. The main reason why companies will issue stock warrants is to raise money.

Even though a company will not see any money from selling stock options, they are able to raise money through stocks that deal with equity. Stock warrants are said to be the intelligent and safe way to invest in a company when compared to other traditional stocks. The reason behind this is because stock warrants are issued at a lower price than traditional stocks. This gives the investor incentive to invest in stock warrants over traditional stocks. Traditional stock options can last anywhere from two to three years. Stock warrants last anywhere from five to fifteen years. Since stock warrants are relatively cheaper and hold a longer maturity date than traditional stocks do, they are more appealing to long term investors.

Stock warrants are also equity derivatives. The two main types of stock warrants are called call warrants and put warrants. A call warrant works by allowing investors to purchase a certain number of shares before a specific date. Put warrants work by selling a specific amounts of equity back to the company that issued the stock warrant. Investors can take action and sell their stock warrants on their given expiration date. Certain stock warrants in the United States allow investors to exercise their stock warrants before their expiration date. In Europe, stock warrants are only exercised on their date of expiration.

Investors who invest in stock warrants can also take advantage of alternative stock warrant options such as commodities and currencies. They can represent a certain amount of shares or commodities and currencies. The amount that it takes for an investor to purchase or sell a stock warrant is known as the strike price. Stock warrants also deal with specific ratios that dictate when an investor can sell or buy them. In other words, a certain amount of warrants are needed to make one unit of an investment share. For example, if a particular stock warrant has a ratio of 2:1, then the investor must purchase 2 warrants in order to invest in one share.

Investors who deal with primarily mid to long term investments are attracted to stock warrants. The amount of return with stock warrants is generally higher than traditional stock options. Long term investors are encouraged to invest in stock warrants. They are also considered high risk, but much like most investments that have high risks they offer high returns as well.

Comments are closed.