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A warrant entitles the holder
to buy or sell a certain additional quantity of an underlying
security at an agreed-upon price, at the holder's discretion. The
right to buy the underlying security is referred to as a call
warrant; the right to sell it is known as a put warrant. In this way
a warrant is very similar to an option. When a warrant is exercised,
a new share of stock is created, whereas when an option is
exercised, the owner of the option receives an existing share that
is delivered.
There are two types of warrants: traditional
warrants and naked warrants. Traditional warrants are issued in
conjunction with a bond, naked warrants are issued without an
accompanying bond.
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