Warrant (security).
In plain English
A warrant is a long-dated right to buy stock directly from the issuing company at a fixed exercise price, and exercising it creates brand new shares. That is the key difference from an exchange-listed call option, which is written by other market participants and moves existing shares between them. Because warrants create new stock, exercising them dilutes existing shareholders. Warrants often arrive attached to a bond, a preferred issue, or a merger, and they can trade separately afterward. Terms are set in the issuer's own documents, so exercise price, expiration, and call provisions vary from one warrant to the next.
01Why it matters
Warrants sitting on a company's books are future shares waiting to appear, so per-share numbers can shrink even when the business itself has not changed.
02The math, step by step
A company has 10 million shares and 2 million warrants at a 12 exercise price. If the stock reaches 20 and all warrants are exercised, the share count rises to 12 million and the company takes in 24 million in cash. Each old share now owns 1 of 12 million rather than 1 of 10 million, roughly a 17 percent cut in ownership share.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A warrant is not a call option. A call is a standardized contract between investors, cleared by an exchange, and it never changes the company's share count. A warrant is issued by the company itself, runs on custom terms, and creates new shares when exercised.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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