What is meant by stock warrants and how it is different from stock options ?

Posted by Epicram on October 24th, 2017

A stock warrant gives its holder right to buy a company's stock at fixed price which is known as exercise price anytime until expiration date and receive newly issued stocks. They are very much similar to stock options. As an option contract is an agreement between two parties in which buyer of the option contract has right to buy/sell stock at some future date at pre decided price, however there is no obligation to do so. To perform well in market traders can follow financial advisory services as it will heps in better management of risk and returns.

 

Some features of stock warrants:

 

1) When holder of the warrant wants to exercise contract he tells the issuer that he is willing to purchase underlying stock. A company issues new stocks when stock warrant is exercised thereby increasing the number of outstanding stocks.

 

2) A warrant's premium amount has to be paid while purchasing shares through the warrant.

 

3) Shortly after the warrant is issued its exercise price is decided.

 

4) A conversion ratio tells about the number of warrant which is required to buy/sell one stock. For example conversion ration of buying a stock is 6:1, it implies that holder needs to buy 6 warrants in-order to buy one stock.

 

 

Some key difference between stock warrants and stock options:

 

1) A stock warrant is usually issued by the company itself and new shares are issued when the warrant is exercised by the holder.

 

2) Options are taxable but warrants are not. Holder just need to pay the purchasing price and no tax is charged on in it in case of warrants.

 

3) Options are usually exercised within one year but warrants are sometimes not even exercised for more than 10 years.

 

 

The primary aim of companies of issuing stock warrant is to raise money as when stock options are bought or sold the company which owns that stock does not get any money. With stock warrant company try to raise money through equity. Also traders are benefited as they are usually available at lower price then stock options. Every trader has his own goals which he wants to accomplish by trading in market. Depending on his goals he may decide options or warrants which is a better choice for him. To improve returns market experts recommendations on mcx tips and other trading tips can be considered as well. Trading in stock warrants can be risky at times if price of underlying stock falls below the strike time. Therefore do not trade blindly and always have a careful understanding of your trade plans. Trading is all about manging risk and earning desired returns. Follow disciplined trading practice to be on the safer side and earn well from market.

 

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