A warrant is a contract that lets you buy shares at a fixed exercise price if you choose to, within a stated period. If the share price stays below that level, the warrant can expire worthless. Warrants are often issued by the company itself and can dilute existing shareholders when exercised.
Key takeaways
- Warrants are optional rights. You are not forced to exercise them.
- Time left to expiry and expected volatility both influence what a warrant is worth in the market.
- Leverage cuts both ways: small moves in the share can create large percentage swings in the warrant.
- Do not confuse a company warrant with unrelated uses of the word in legal or police contexts.