Advertisement

Warrants

Warrants are a type of security issued by companies and traded in the market, much in the way that shares are.

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.

Advertisement - Article continues below

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.

Watch Tim Bennett's video tutorial: What are options and covered warrants?

Advertisement
Advertisement

Recommended

Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
14 Jul 2020
Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
14 Jul 2020
Barbell strategy
Glossary

Barbell strategy

A “barbell… investment strategy means weighting a portfolio towards the two extreme ends of an asset class with nothing in the middle.
8 Jul 2020
Real exchange rate
Glossary

Real exchange rate

The real exchange rate between two currencies combines the nominal exchange rate with the ratio of the price of goods or services in two different cou…
26 Jun 2020

Most Popular

An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
Three ideas for Lloyds Bank's new boss
UK stockmarkets

Three ideas for Lloyds Bank's new boss

The Black Horse needs whipping into shape. A change at the top provides a great opportunity, says Matthew Lynn.
12 Jul 2020
Why the moving average is my favourite charting tool
Sponsored

Why the moving average is my favourite charting tool

Traders and technical analysts use "moving averages" to iron out daily fluctuations and give a much clearer picture of a market's direction. Dominic …
13 Jul 2020