Definition Of A Stock Warrant
Several years ago in New York at a Hard Assets Investment Conference, a newsletter writer with over 30 years in the business, asked me, “Dudley, what is a stock warrant?” After regaining my composure, I responded just like I am addressing you, by defining a warrant and why you should be interested. By definition, a warrant is a security, issued by a company, giving the holder the right, but not the obligation, to acquire the underlying shares, at a specific price and expiring on a specific date in the future. This definition is very similar to stock options or LEAPS, (Long-Term Equity Anticipation Securities) except that warrants are actually issued by a company, whereas options and LEAPS are created/written by investors. Warrants are traditionally issued in connection with a company’s private placement or equity offering as additional incentive to get the deal done. Warrants are mostly a matter of common sense and arithmetic, so let’s not make this complicated. Stock warrants can be issued by companies for as little as 1 year or for 5 years or more. Obviously, the longer the term of the warrant (time until expiration) the better your chances of great success. However, just because a stock warrant has a 5 year life does not mean that you must hold the warrant for 5 years. With trading warrants you can buy the warrants one day and sell them the next day. Exercising a warrant should never be one of your considerations, as it makes no sense … Continue reading →
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