Share Warrants Definition

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A share warrant is a derivative instrument commonly bought by investors. This instrument guarantees to the investor a preset price known as the strike price until the expiration of the warrant. These are often long-term instruments.

Function

Share warrants are instruments issued by companies to give owners the rights to buy or sell shares in the company at specified prices at a future point in time. These warrants can be traded in the market. The prices of these warrants fluctuate as per the fluctuation in the price of the associated share.

Features

The intent of issuing share warrants is to find a way to leverage purchases of stocks. The leverage ratio is referred to as the “gearing ratio.”

The owners of share warrants do not receive dividends and have no voting rights in the company.

Types

There are two types of share warrants. The first type, the "call warrant,” gives the investor rights to buy the share at a specific price. "Put warrants”, are the second type. Here the investor has the right to sell the share warrant at a particular price.

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