Warrants
A warrant gives the holder the right, but not the obligation, to buy a company's shares at a set price before a set date. Unlike exchange-listed options, warrants are issued by the company itself, often last for years, and create new shares when exercised.
Warrants look a lot like call options, but they come straight from the company. Firms attach them to bond deals, share offerings or SPAC listings as a sweetener for investors. When exercised, the company issues new shares and raises money. This entry explains how warrants work, how they differ from options and what dilution means.
- Category
- Derivatives
- Reading time
- 3 min
- Also called
- Stock warrants, Warrant, Call warrant
- Updated
Warrants in plain words
Stock warrants are issued by a company and give investors the right, but not the obligation, to buy its stock at a specific price within a set period.1
When a warrant is exercised, the investor buys the stock and the money becomes new capital for the company.1
In effect, a warrant is a long-term option to buy a stock at a fixed price, issued directly by the company.2
How a warrant works, step by step
The company issues warrants
Often alongside bonds or shares.
Check the exercise price
The price to buy each share. See Strike Price.
Check the expiry
Often several years away. See Expiration Date.
Check the ratio
Shares received per warrant.
Exercise or sell
Exercise if the share price is above the strike.
New shares are created
Existing holders are diluted. See Share Dilution.
Worked examples
Example 1 — Exercising a warrant
$6.50 valueA warrant lets you buy 1 share at $11.50. The stock trades at $18.
| Intrinsic value | $18 − $11.50 = $6.50 |
| Paid to the company | $11.50 per share |
Exercising buys the stock at the fixed price, and the proceeds become capital for the company.1
Example 2 — Expiring worthless
WorthlessThe stock is at $9 when the $11.50 warrant expires.
| Value at expiry | $0 |
A warrant is a right, not an obligation, so out-of-the-money warrants are simply left to expire.1
Example 3 — Dilution
DilutedA company has 100 million shares and 20 million warrants that are all exercised.
| New share count | 120 million |
| Ownership of a 1% holder | 1m ÷ 120m ≈ 0.83% |
Because exercise creates new shares, existing holders own a smaller slice. See Share Dilution.
Warrants vs listed options
| Aspect | Warrants | Listed options |
|---|---|---|
| Issued by | The company | Exchange, between traders |
| Typical life | Years | Days to about three years |
| On exercise | New shares created | Existing shares change hands |
| See also | Call and put warrants | Options |
Where warrants appear
SPACs
Units often include warrants. See Initial Public Offering.
Bond sweeteners
Making debt more attractive. See Corporate Bonds.
Rescue financing
Lenders get equity upside.
Leveraged speculation
Cheap exposure to a share. See Leverage.
Advantages and disadvantages
Advantages
- Long time to expiry.
- Leveraged exposure to the stock.
- Can be traded separately once detached.
Disadvantages
- Dilution for existing shareholders.
- Can expire worthless.
- Often less liquid than options.
Going deeper
Read as far as you need. Each level builds on the one before it.
Call and put warrants
Beginner
Call warrants give the right to buy shares from the company; put warrants give the right to sell shares back to it.1
Popularity by country
Intermediate
Warrants are less common in the United States than in some other markets, such as China.1
No ownership until exercise
Advanced
A warrant is not share ownership: no dividends or votes until it is exercised.1 See Option Pricing Models.
Common mistakes
Treating them like listed options
Terms and liquidity differ.
Ignoring dilution
It affects the share price.
Missing redemption clauses
Companies can sometimes force early exercise.
Forgetting expiry
Long-dated doesn't mean forever.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Warrants are company-issued rights to buy shares.
- They often last for years.
- Exercise creates new shares and raises capital.
- That dilutes existing shareholders.
- They can expire worthless.
Frequently asked questions
Are warrants the same as options?
Why do SPACs include warrants?
Can I trade warrants?
Further learning
- Options
The exchange-listed cousin.
- LEAPS
Long-dated listed options.
- Share Dilution
The cost of warrants.
- Convertible Bonds
Another hybrid instrument.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Corporate Finance Institute. Stock Warrants (opens in a new tab) Checked .
- Corporate Finance Institute. Warrant (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.