Warrants are a type of security issued by companies and traded in the market, much in the way that shares are. But rather than give you equity directly, a warrant gives you the right to buy new shares in a company for a fixed price at a fixed date in the future. This price, the subscription price, will be fixed above the prevailing share price on the issue date so that initially, you are paying only for the possibility that the share price might rise above the fixed price.
Suppose, for example, that a warrant is issued that gives the right to buy shares in a year at 150p. If the shares currently trade at only 100p, there is no intrinsic value in the warrant, only 'hope value'. If the share price stays below 150p, there is no point in subscribing for the shares. If, however, the share price rises to 200p, there is clearly value in owning the right to buy shares at 150p, and in buying the shares when you are able to. The price of the warrant in the market will rise to reflect this.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
8 of the best riverside properties for saleThe best riverside properties for sale – from a Grade II-listed former mill house with views over the River Chelmer in Essex, to a townhouse on a Georgian terrace overlooking the Avon Gorge in Clifton, Bristol
-
Will “Liberation Day” strike again?Donald Trump’s 90-day tariff pause comes to an end on 9 July. Can we expect further market turmoil?
