Stock warrants are defined on Wikipedia, https://en.wikipedia.org/wiki/Warrant_(finance):
“In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed price called exercise price until the expiry date. Warrants and options are similar in that the two contractual financial instruments allow the holder special rights to buy securities.”
Common Stock Warrants provides a database of stock warrants trading in the United States and Canada in all industries and sectors. The service has been in existence since May 2005 and was initially named, PreciousMetalsWarrants.com. In 2013, services were expanded and the name was changed to CommonStockWarrants.com.
A Database of all trading warrants in the U.S. and Canada
A Listing of all trading warrants
Ownership of CommonStockWarrants is the sole property and responsibility of Dudley Pierce Baker.
Articles on stock warrants by Dudley Pierce Baker have appeared on many websites, including Kitco. 321Gold, Goldseek, TheMorganReport, 24HourGold, TalkMarkets, SeekingAlpha and many more.
Videos and interviews have been done with BNN, FuturesMagazine, ResourceWorld, EllisMartinReports, KorelinEconomicReports, PalisadeRadio, TheGoldReport, TheFinancialSurvivalNetwork, JayTaylor and others.
Books – In 2017, “The Stock Warrant Handbook, Your Personal Guide To Stock Warrants” was written by Dudley Pierce Baker and is a useful research tool to all investors:
What is a Warrant?
Background and History of Warrants
Why You Should Consider Warrants
A Warrant On What?
Private Placements vs. Trading Warrants
How I Determine Current Values
Are You A U.S. or Canadian Investor?
How to Place Your Trades
The Stock Warrant HandBook, Your Personal Guide to Trading Stock Warrants is available free to visitors of http://CommonStockWarrants.com and is also available on Amazon.com.
Excerpts from Wikipedia, the free encyclopedia:
Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. They can be used to enhance the yield of the bond and make them more attractive to potential buyers. Warrants can also be used in private equitydeals. Frequently, these warrants are detachable and can be sold independently of the bond or stock.
In the case of warrants issued with preferred stocks, stockholders may need to detach and sell the warrant before they can receive dividend payments. Thus, it is sometimes beneficial to detach and sell a warrant as soon as possible so the investor can earn dividends.
Warrants are actively traded in some financial markets such as German Stock Exchange (Deutsche Börse) and Hong Kong. In Hong Kong Stock Exchange, warrants accounted for 11.7% of the turnover in the first quarter of 2009, just second to the callable bull/bear contract.
Structure and features
Warrants have similar characteristics to that of other equity derivatives, such as options, for instance:
- Exercising: A warrant is exercised when the holder informs the issuer their intention to purchase the shares underlying the warrant.
The warrant parameters, such as exercise price, are fixed shortly after the issue of the bond. With warrants, it is important to consider the following main characteristics:
- Premium: A warrant’s “premium” represents how much extra you have to pay for your shares when buying them through the warrant as compared to buying them in the regular way.
- Gearing (leverage): A warrant’s “gearing” is the way to ascertain how much more exposure you have to the underlying shares using the warrant as compared to the exposure you would have if you buy shares through the market.
- Expiration Date: This is the date the warrant expires. If you plan on exercising the warrant, you must do so before the expiration date. The more time remaining until expiry, the more time for the underlying security to appreciate, which, in turn, will increase the price of the warrant (unless it depreciates). Therefore, the expiry date is the date on which the right to exercise ceases to exist.
- Restrictions on exercise: Like options, there are different exercise types associated with warrants such as American style (holder can exercise anytime before expiration) or European style (holder can only exercise on expiration date).
Warrants are longer-dated options and are generally traded over-the-counter.
Sometimes the issuer will try to establish a market for the warrant and to register it with a listed exchange. In this case, the price can be obtained from a stockbroker. But often, warrants are privately held or not registered, which makes their prices less obvious. On the NYSE, warrants can be easily tracked by adding a “w” after the company’s ticker symbol to check the warrant’s price. Unregistered warrant transactions can still be facilitated between accredited parties and in fact, several secondary markets have been formed to provide liquidity for these investments.
Comparison with call options
Warrants are very similar to call options. For instance, many warrants confer the same rights as equity options and warrants often can be traded in secondary markets like options. However, there also are several key differences between warrants and equity options:
- Warrants are issued by private parties, typically the corporation on which a warrant is based, rather than a public options exchange.
- Warrants issued by the company itself are dilutive. When the warrant issued by the company is exercised, the company issues new shares of stock, so the number of outstanding shares increases. When a call option is exercised, the owner of the call option receives an existing share from an assigned call writer (except in the case of employee stock options, where new shares are created and issued by the company upon exercise). Unlike common stock shares outstanding, warrants do not have voting rights.
- Warrants are considered over the counter instruments and thus are usually only traded by financial institutions with the capacity to settle and clear these types of transactions.
- A warrant’s lifetime is measured in years (as long as 15 years), while options are typically measured in months. Even LEAPS (long-term equity anticipation securities), the longest stock options available, tend to expire in two or three years. Upon expiration, the warrants are worthless unless the price of the common stock is greater than the exercise price.
- Warrants are not standardized like exchange-listed options. While investors can write stock options on the ASX (or CBOE), they are not permitted to do so with ASX-listed warrants, since only companies can issue warrants and, while each option contract is over 1000 underlying ordinary shares (100 on CBOE), the number of warrants that must be exercised by the holder to buy the underlying asset depends on the conversion ratio set out in the offer documentation for the warrant issue.
There are various methods (models) of evaluation available to value warrants theoretically, including the Black-Scholes evaluation model. However, it is important to have some understanding of the various influences on warrant prices. The market value of a warrant can be divided into two components:
- Intrinsic value: This is simply the difference between the exercise (strike) price and the underlying stock price. Warrants are also referred to as in-the-money or out-of-the-money, depending on where the current asset price is in relation to the warrant’s exercise price. Thus, for instance, for call warrants, if the stock price is below the strike price, the warrant has no intrinsic value (only time value—to be explained shortly). If the stock price is above the strike, the warrant has intrinsic value and is said to be in-the-money.
- Time value: Time value can be considered as the value of the continuing exposure to the movement in the underlying security that the warrant provides. Time value declines as the expiry of the warrant gets closer. This erosion of time value is called time decay. It is not constant, but increases rapidly towards expiry. A warrant’s time value is affected by the following factors:
- Time to expiry: The longer the time to expiry, the greater the time value of the warrant. This is because the price of the underlying asset has a greater probability of moving in-the-money which makes the warrant more valuable.
- Volatility: The more volatile the underlying instrument, the higher the price of the warrant will be (as the warrant is more likely to end up in-the-money).
- Dividends: To include the factor of receiving dividends depends on if the holder of the warrant is permitted to receive dividends from the underlying asset.
- Interest rates: An increase in interest rates will lead to more expensive call warrants and cheaper put warrants. The level of interest rates reflects the opportunity cost of capital.
Warrants can be used for Portfolio protection: Put warrants allow the owner to protect the value of the owner’s portfolio against falls in the market or in particular shares.
There are certain risks involved in trading warrants—including time decay. Time decay: “Time value” diminishes as time goes by—the rate of decay increases the closer to the date of expiration.
- Basics of Financial Management, 3rd ed. Frank Bacon, Tai S. Shin, Suk H. Kim, Ramesh Garg. Copley Publishing Company. Action, Mass., 2004.
- Special Situation Investing: Hedging, Arbitrage, and Liquidation, Brian J. Stark, Dow-Jones Publishers. New York, NY, 1983. ISBN 0-87094-384-7; ISBN 978-0-87094-384-3.
- Warrants on Wikinvest
- Chicago Board Options Exchange
- Finance glossary by SGCIB
- Warrants traded in Hong Kong—Information on warrant products traded in Hong Kong
- Covered warrants from Societe Generale in the UK
- Covered warrants from Royal Bank of Scotland in the UK
- Common Stock Warrants