Warrant (finance) - Structure and Features

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.

Read more about this topic:  Warrant (finance)

Famous quotes containing the words structure and/or features:

    The verbal poetical texture of Shakespeare is the greatest the world has known, and is immensely superior to the structure of his plays as plays. With Shakespeare it is the metaphor that is the thing, not the play.
    Vladimir Nabokov (1899–1977)

    “It looks as if
    Some pallid thing had squashed its features flat
    And its eyes shut with overeagerness
    To see what people found so interesting
    In one another, and had gone to sleep
    Of its own stupid lack of understanding,
    Or broken its white neck of mushroom stuff
    Short off, and died against the windowpane.”
    Robert Frost (1874–1963)